FP Answers: What should an investor do if they own a lot of shares in one company?

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ICYMI FP Answers: What should an investor do if they own a lot of shares in one company?

and should certainly be in focus based on your situation. One common approach is that once a portfolio of stocks surpasses 20 to 30 holdings, further diversification by adding another stock may be of little value. The rationale here is that you cannot “diversify away” systemic risk.

If an investor needs 20 stocks at minimum for diversification, that suggests any individual holding should not exceed five per cent of your total investment portfolio. This rule is consistent with the 20-stock idea, as a five-per-cent allocation to 20 stocks would account for 100 per cent of a portfolio.Article content

It sounds like you have been buying shares of your employer for many years. Some companies offer matching contributions or a discounted share purchase price to entice employees. Companies may even pay bonuses in shares or issue other share-based compensation such as stock options or restricted share units. Employees often feel more comfortable investing in shares of their employer because it is a business they know and understand.

If your employer offers perks to buy company shares, it makes sense to take advantage of these, but ensure you have a plan on how to approach these funds over time. For example, you could choose to sell your employer’s shares on a regular basis. You could also sell based on when the shares reach a certain percentage of your overall portfolio.Article content

 

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