Imagine that you get your salary from company A, you are saving for retirement via company A and you have invested a large part of your savings in the stocks of company A. Is this your situation or could you end up in this one? Be careful.

Your personal finance situation often develops into directions that you did not plan out in advance. You just end up in a situation that carries more risk than you would like.

It all started so good:

• You got this great job offer from company A. You accepted it and now you are working there already for quite a few years. You made promotions and advanced your salary significantly. Of course you bought a nice house with a heavy mortgage that you can pay easily from your current salary.
  
  
• Company A has this great retirement program. They match the part of your salary that you save for retirement. That is a great offer. Of course you save well and plan to retire when you are 60.
  
  
• With your last promotion, you came to the management level where Company A offered you a special stock market plan. For every share you bought, they gave you 2 extra shares. You cannot sell the shares for another 5 years, but that is no problem since you do not need the money now anyhow. And with a 200% gain (2 extra shares for each company stock that you buy), of course you invest the maximum allowed.

And then…. Company A goes bankrupt.

Company Stock Gone

You lost your job; salary gone. Your savings that you invested in the company stock: gone. And then after a month or two the news came out: trying to avoid the bankruptcy, the management of the company had found a (maybe illegal) way to use the retirement savings for the last futile marketing campaign and expansion into new markets. Retirement savings: 60% gone.

I don’t think I have to spell out the personal finance consequences for a person who finds him or herself in the situation above. No investing guide will help anymore. Use your imagination. It is not pretty.

Of course you do not work for company A … You work for company B and this would never happen to your company!

Sleep well.

Diversify Investing Your Savings

When you review your financial situation, think about the following:

1. Take the job, get the promotions and accept the salary advances. Buy the house, but make sure that if you would lose your job, you will have a way to pay the mortgage for another year or two, until you get another job. Look for example at mortgages where you can stop repayments during a period of unemployment.
   
   
2. Make use of the excellent retirement plan of your company, but do not rely solely on it. Use also a different way of saving for your retirement.
   
   
3. Do not invest all your savings in the company stock plan. Only invest that part in it that you can afford to lose. Don’t bet on a single horse. Diversify your savings over different assets like index funds.

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Your financial future is what you make of it. Be careful with investing all your savings in the company stock.

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