Instead of asking, are we a stock or a bond, we should be asking are we a lottery ticket or a bond.
"For the most part, although our human capital has gotten riskier, the average return on it hasn't moved higher, at least not in developed nations," Bernstein said in an e-mail. What's new now, he said, "is that there's a much bigger positive skew: A very few people at the top do spectacularly well and make millions and retire, if they want, at age 33. That didn't exist 6o years ago. But on average, and certainly at the median, the return on human capital hasn't increased. Hence, lottery versus bond."
Maybe you feel investing in your company is "safer," since you're familiar with the business. But history shows that a company's vulnerability can be far from apparent, even to insiders.
And the trend is against you. A little more than 30 percent of plans now limit how much can be invested in company stock, according to data from the Plan Sponsor Council of America. Ten years ago, 17 percent of plans had more than 50 percent of total plan assets in company stock, compared with 6.6 percent of plans today.
Yet the percentage of companies offering employer stock as an investment option in a 401(k), while down, is still significant. For all companies, public and private, it was 34 percent last year, down from 39 percent in 2013, according to Aon Hewitt. Among companies with publicly traded stock, it's shockingly high, at 63 percent.
Whether your career is best represented as a stock, a bond, or a lottery ticket, the best strategy for the long run is to keep the bulk of your retirement money in diversified, low-cost index funds or in a low-cost, target-date fund.
We're glad you believe in your company. But you wouldn't believe what could happen to its stock.
This article was provided by Bloomberg News.