Choose wisely. There is only one correct answer to each question.
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1.
What is a disadvantage of owning a lot of your company's stock?
You're putting both your present and your future financial security in your employer's hands. Investing in your company can be highly profitable. However, by over-concentrating in your company's stock, you're tying your current and future financial well-being to your employer's well-being. That's a risk.
2.
If their investment goal is less than five years away, how much of their company's stock should most investors own at most?
10%. If your company's stock hits a bad streak right before you need the money, you may not be able to reach your goal.
3.
If you find that you're over-invested in your company and your goal is more than five years away, what should you do?
Objectively analyze your company's stock as you would any other investment and determine whether or not you should scale back your position. You may find that, given your goals and risk tolerance, you can continue to overweight your company's stock if it's a good investment. Don't assume that you can just do nothing, though. Treat company stock like any other investment.
4.
You might currently own some of your company's stock indirectly via _______.
Mutual funds. Mutual funds that you own may have your company's stock in them if the stock is publicly traded. These funds could be part of a company retirement plan or you might hold them independently of it.
5.
Overinvesting in your own company's stock will lead to financial ruin.
False. Though it has done so in some high-profile cases, it has also worked out well in others. Some people have done very well by overinvesting in their company's stock, even though it is a risky move nevertheless.
