View Full Version : Help me allocate

08-11-2005, 10:43 PM
So, I have 2 investment options through my employer. One is a 401K that invests in Vangaurd funds. I get a 4% match on the first 6% of my income I contribute. I can invest up to 18% of my earnings in this pretax.

They also have an employee share purchase program at which I can buy company shares at 15% below market price. I set up a percentage and this is automatically deducted from my paycheck, but shares are bought only on the first day of each quarter.

I also have an Ameritrade account that I have not contributed to since I was an intern at a different company. I started investing in this at the wrong time (Early 2001) but have still managed a return > 14% per year picking stocks.

I can sell the company shares after I have owned them for 12 months. So I could sart some program where I buy them each month and sell the ones I bought a year ago and take the instant 15%. I guess I could then put this in a Roth or something when I get the cash.

Anyway, whoever here is good at portfolio theory thell me what is my optimal allocation to get the best risk/return?

The company I work for is an international conglomerate with a morket cap over 25 billion, it is somewhat diversified owning major cyclical and non-cyclical businesses.

Currently my allocation is approximatley
Ameritade Account = 1.0
401K = 1.5
Company Stock 0.6

1. Should I adjust my current allocation (assume trading costs to get money in and out of anything) and I can't pull money out of the 401K without penalties.

2.) Where should I start putting my future income? Assuming I wil put at least enough into the 401K to max the employer match.

3.) I don't want to disclose my employer, but for the sake of argument, assume it is fairly valued.

08-11-2005, 11:03 PM
The most important question is how much disposable income you have that can be set aside for the future. (for simplicity/privacy, lets say as a percentage of gross) [As an aside, you should be trying to get this percentage as high as possible]

What is the maximum that you can set aside for company stock purchase, in what vehicle is this asset stored (taxable or untaxable account), and are investments this way in post-tax or pre-tax $$$?

08-11-2005, 11:28 PM
Let's assume I can save 15% without crimping my lifestyle. 20% if I was desperate but I am not. I have many many years until retirement.

The Employee Purchase plan is after tax, and I also pay taxes on the 15% gap that the company covers. After that, it is taxed as any normal stock holding for dividends and capital gains. I do not think it is possible to transfer the shares into some kind of tax advataged account but I never thought of looking into it.

Dan Mezick
08-12-2005, 06:41 AM
Rather than give advice, I'll quote some facts.

Many Enron employees, who already assumed some risk by working there, assumed more concentration of risk in Enron by investing heavily in the stock, via the firm's "retirement" plan.

When it imploded it was a double-whammy for them.

08-12-2005, 07:35 AM
I've thought about this. I am afraid to take full advatage of the 15% because of a lack of diversification. I will say that I think governance at my employer is relatively good, I know that they report down years sometimes so they are not completely cooking their books.

Another thing to note is that it is a European conglomerate listed on the Frankfurt exchange. I get ADRs on the NYSE, but they may not be regulated the same as US companies.

08-12-2005, 10:08 AM
Let's assume I can save 15% without crimping my lifestyle. 20% if I was desperate but I am not. I have many many years until retirement.

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You should be maxing out your 401K and actively managing your allocation to the various funds available to you there.

You should deal with your company stock the same way you would handle any other stock in your taxable account, buy when its undervalued, sell when its overvalued. You should also ensure that it doesn't become a large percentage of your assets, and trading around a core position within the annual ownership restriction would be one way to do that. The 15% corp gift certainly helps, but you still want to be buying when the stock is expected to go up.

Anything else should go into your taxable trading account.

Think of your 401K as your income generator for 65+, and your taxable port as your retire early income generator /images/graemlins/wink.gif