Cerner Employees, You Own Too Much Of Your Stock!Submitted by Castlebar Asset Management on July 18th, 2017
Owning your company’s stock can be a blessing or a curse. Jason Zweig, a Wall Street Journal columnist highlighted this weekend several retirement plans where employees owned a ton of their shares in their 401k or other retirement plans. Cerner was one of the companies called out in the article. Over 46% of the assets in Cerner’s 401k plan are held in company shares!
We have written on many occasions that owning shares in your company stock can be a great thing when it is the right amount. There is a fine line from the right amount too owning too much. In the case of Cerner, it can be tricky because two things are working in your favor for accumulating more stock. Your company match is in stock and the stock has risen a lot in 2017. Options, associate stock purchase plan (ASP) and stock grants also contribute to having a concentrated holding of Cerner shares.
The WSJ article mentioned how Kroger’s shares plummeted after Amazon agreed to buy Whole Foods. This is another example along with Enron and Lehman Brothers where employees were hurt by being too concentrated. For every Amazon or Apple employee success story there are many more like Enron, WorldCom or Lehman Brothers.
Determining the right amount (46% is too high) is really based on your personal situation. Figuring out the right amount is more art than science. What should be factored in is what are your goals, your risk tolerance and how you think your company will perform. You are likely biased about the last one! You will also have a continuous flow of new shares coming into the 401k and through other sources to consider.
Once you figure out what the right level of ownership is for you, have a plan to address this now and on an ongoing basis in the future. You don’t want to rip the band aid off and sell everything today, but you should have a strategy to reduce your overweight position in Cerner shares. Your 401k is an easy place to start because there is limited tax exposure. If you are nearing retirement take a look at using a tax strategy called Net Unrealized Appreciation. If you own shares through the ASP, stock option or stock grants work with your financial planner or accountant to figure out the financial and tax implications of selling outside of your retirement accounts.
Skin in the game is important, but too much is asking you to take on too much risk.
Take a look at these articles which could give you more information:
How Much of Your Company’s Stock Is Too Much?
A Financial Guide To Owning Your Company’s Stock
A Guide to Cerner Corporation’s 401k
A Guide to Your Employee Stock Purchase Plan
Strategies For Your ESPP
Strategies For Your ESPP 2
Please contact me at 913-871-7980 or by email to discuss your 401k investments. Follow me on Twitter @CastlebarAM.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Castlebar owns shares in Cerner for their clients but may change their position at any time