In 2011, I met a new client who works for a bank. He had been working for this bank for decades and had accumulated a lot of shares in them over the years. During the credit crunch recession, he saw his share portfolio fall from €600,000 to just €60,000. I asked him if there was ever a time when his shares were falling by 90% did he ever think of selling? It had never crossed his mind.
This is not uncommon. Investment banks in the US encouraged staff to buy company stock with their bonuses. When Bear Sterns and Lehman Brothers collapsed, the employees found themselves out of work and their savings wiped out.
People who work in construction like to invest in an area that they know about, property. Some also have a suspicion of how the stock market works and prefer to avoid it if they can. But not only are they investing in the same industry that employs them, they usually borrow to make their investment.
We all feel comfortable investing in an area we know about. But what is the point in earning your money in one industry and ploughing all your savings into that industry too. Where is the diversification of risk? What happens if it all goes wrong? You lose your job and your investments are worth nothing.
To invest your savings in the company that you rely on for a salary is nuts. There is no point in diversifying into other companies in your industry because if one goes, there is a good chance that the other companies are in trouble too. You need to diversify your investments and in industries that are completely unrelated to what you do.
Are you heavily invested in the company that pays your wages? Why haven’t you diversified your assets outside the company that pays you? Let me know at steven@bluewaterfp.ie