Poor Richie Rich - A Lesson About Company Stock

By Michael Tarsala

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.

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.