A guy I knew in the Silicon Valley heydey was known for two things: Parking his Datsun 280z on his front lawn and crowing about his wealth. A lot of people were braggarts back then, but this guy did far more than most.
Poor Richie Rich
Richard (let’s call him) wooted to his buddies the day he had $1 million, entirely in company stock and options. A lot of us warned him about diversifying and moving some of it into cash – at minimum to throw a respectable beer bash. He cashed out NONE of it, and eventually was worth $4.5 million on paper. It was an amazing amount of money for a guy from humble beginnings. He wooted all the more.
A few years later, the guy ended up with less than 10% of that fortune. He lost his tech job and had to cash out a chunk of a 401 that was suddenly cut by more than half. All but his earliest-issued options wound up being useless. It wasn’t even enough to buy his rented house.
The Lesson: Don’t park a beater sports car in your yard. It’s bad, bad karma.
And don’t be a Richard when it comes to socking away company stock. Putting some money in an ESOP is OK, but even that should be part of an overall plan to diversify all your investments. You already depend on your employer for income. Why double down on your dependence?
Please, read this from Brett Arends. And pass it along to anyone who might be making this mistake.