Posted by: Mark Singer CFP®

Far too many people make the mistake of putting all their eggs in one basket when it comes to saving for retirement. This is a mistake driven by not only an error in judgment with your investments, but also a false sense of security if you work for one large organization. Unfortunately, the effects of this kind of mistake can be disastrous. Blind faith in one’s company can potentially be the single most costly mistake one could make heading into retirement.

If you work, or worked, for Polaroid, Enron, General Electric, Goldman Sachs, BP or any other large organization whose stock fell precipitously at just the wrong time, you clearly understand the risk. No matter how long you have worked somewhere and no matter how well you think the stock will perform, it’s never prudent to invest heavily in one stock.

It is interesting to hear people who had up to 100% of their employer stock within their 401(k) program talk about their investment philosophy. Often, they’ll tell me that their investment philosophy is conservative. Conservative here means that they are very familiar with, or feel very comfortable with, their own organization. They’ve been loyal employees and feel that no matter what happens, the company will take care of them.

When I question someone who has 100% of their investment portfolio in their employer’s stock, I get a number of different responses. First, many will indicate that they’re well aware of the risk that they are taking but that the company’s growth is still targeted to be outstanding for the next several years, and they don’t want to miss out on that.

Next is someone who has been with an organization, such as General Electric, where the stock used to be at $60, dropped to $30 and then to $20, and they’re waiting for the stock value to go back up to the previous valuations before they consider selling. This assumes the stock is going to go back up.

Then there is the response from the soon-to-be retiree who recognizes they are completely dependent upon the value of that stock in order to accomplish their retirement goals, and would not have it any other way. Unfortunately, there is little I can do to sway someone emotionally who has been employed as long as many have been with one company. No matter how intelligent these people are, they are putting themselves in harm’s way, and I can only wish them well. These folks do not realize that the potential losses could be much more detrimental to their retirement than any potential gain.

Once someone recognizes the pitfalls of taking this type of investment risk, I can share with them how to properly diversify the portfolio, take on the appropriate risk, and sync up their investment philosophy with their retirement goals.

Recently, I was talking with someone who was five years from his retirement date. He’s worked for one of the largest worldwide organizations for 35 years and is anxious to retire comfortably. He, like many of his peers, had upwards of 95% of his investments in his 401(k) plan in his corporate stock.

When we first began putting together his Retirement Roadmap, I mentioned that we needed to deal with was his current investment strategy. He, however, made it clear that at that moment he was not willing to discuss the possibility of diversifying his holdings.

Once we completed his Retirement Roadmap and there was an understanding that he could accomplish his retirement goals, even with modest returns, we decided to revisit the conversation about investments. Since we had taken a different path to understanding how to retire, he was more aware of what he needed to do to retire comfortably. In his case, he was fortunate enough to have already accumulated enough money to successfully retire. Now that we had established he had achieved his benchmark number for his desired retirement, he was willing to revisit the overall allocation within his 401(k).

By taking a different perspective and doing the Retirement Roadmap first, before we took a look at how to diversify his portfolio, he was more empowered and knowledgeable about both the upside and downside of the journey into retirement. This goes back to synchronizing your investment portfolio with your retirement goals. During our working years, we are looking to accumulate as much money as possible, yet no one has told us when, or how, to make the necessary change once we have accomplished our goals. And that is assuming that you actually have goals. Learn the lessons of history. Don’t let how you feel about your tenure at your organization drive you to make poor investment decisions that could potentially derail a successful retirement.

Mark Singer is a CERTIFIED FINANCIAL PLANNER professional and the author of The Changing Landscape of Retirement What You Don’t Know Could Hurt You. He has been The Retirement Guide to thousands of investors for close to 25 years and is the creator of the Retirement Roadmap and the Financial Organizer System. both of which contribute to a solution to investors’ greatest concernsproperly coordinating their financial affairs. These systems have become a primary resource for the people who have worked with Mark over the years. You can download the first chapter of Mark’s new book for free by Liking it on Facebook.