I am reading Larry Swedroe’s book Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals (I will be writing a review about it soon), but an excellent point made in the book is not putting too many eggs in one specific basket, and it was an investing mistake that I made in my younger days.
One of the biggest investing mistakes I made while working for Nortel was that I was far too heavily invested in the company. Simply put:
- I was receiving a salary from the company, and that was my primary investment with them
- Bought Nortel stock as part of a stock purchase plan (where the company kicked in a $1 for every $2 you put in).
- Had a few stock options (no, nothing of great value but it was there)
- My Disability Insurance was with Nortel (I didn’t know this one at the time, turned out to be a very bad thing for some very unlucky folk)
- My Pension was with the company (again, I thought the pension was a safe thing, turned out that was not the case)
All of those eggs sitting in one basket is a very risky thing. I was betting on Nortel for my Present (salary), Future (Pension), Health and Safety (disability) and my savings (Stock), which was way too damn much (and yes I paid dearly for it).
At the time a few smart folks said things to me about being too vested in one Company, but in the late 1990’s, who thought it was all going to come crashing down? Who indeed! Did someone say “too big to fail”?
What Should I Have Done ?
No matter what, I should have divested myself in some fashion. Ideally I should have:
- Sold some or most of the stock and put it in Index Funds, Bonds or GICs, to lower my exposure there
- Couldn’t do anything about the options, the only time they were above water it was only for about $350
- Used my savings and RRSPs to diversify where my money ended up
Now, I work for the Federal Government. I am highly invested in them for about the same list as above (but no stock or stock options). I have divested in some ways with RRSPs, so if anything happens to my pension I do have some retirement savings.
Do you have too many eggs in your employers basket? This could be a lethal investing mistake in your financial life.