Diversification

Investors typically think of diversification in terms of fixed income versus equity and a suitable range of specific investments in each asset class.  However, employees of companies with publicly traded shares and robust pension and retirement programs, may not be fully recognizing the additional risks involved.

A recent article in The Wall Street Journal, discussing the plight of General Electric retirees, raises interesting issues relating to investors’ portfolio strategy and their employment.

The rapid unraveling of GE has wiped out approximately $140 billion in stock market wealth.  This has adversely affected the value of the company’s pension fund assets, retirement and savings plans, to the extent that they hold significant positions in GE common stock.

Investors and their advisor(s) should look beyond traditional portfolio strategy and also consider the implications inherent in the investor’s employment.  After all, in worst case scenario, if your employer gets into trouble, you could lose your job, see the strength of your pension plan diminished and face a material decrease in the value of your savings.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA