How I lost £30,000 by being ‘loyal’ to my employer
I am going to tell you about something that happened to me that, with hindsight, makes me look rather foolish.
That said, the experience in question was a salutary lesson, learned the hard way. It taught me the importance of diversification, not just in terms of one’s portfolio but also with regards to other areas of exposure, such as employment.
When I started working full time back in 2007, I landed a job with a company that appeared to be going places. The firm was expanding rapidly and was planning a stock market flotation (an IPO – initial public offering, in technical jargon).
Many employees – including yours truly – were awarded stock options. At first glance, these seemed pretty modest. I was awarded the option to enrol for x number of shares for a total sum of around £2,000. Nothing major, it seemed. But having been convinced that I was getting a bargain, I bought the full amount, hoping to maybe double my money on flotation.
As it happened, my shares were worth around £16,000 on flotation! To put that into perspective, my salary at the time was around £20,000.
I was convinced I was on to a winner, especially as the shares gradually doubled in value to leave me with a holding worth north of £30,000 in a few years’ time.
REALITY CHECK: Here is where I should have reassessed the situation. By this point I had around half my entire net worth tied up in shares in my employer. This meant I was doubly exposed – both through my continuing employment with the firm, and through the financial exposure through the shares. I should have sold – or at least reduced – my holding there and then!
However, it was then that things started to go down-hill for my employer. The company had expanded too quickly and via acquisitions – a typical red flag for investors. Action was taken to ‘restructure’ the business; my shares started to decline in value.
Nevertheless, I was determined to hold steady, perhaps driven primarily by a sense of loyalty to my employer, who had bestowed this bounty upon me.
REALITY CHECK: Unless you’re working for a family-owned business and you have some kind of deep personal connection with the owners, loyalty – of the sentimental kind, at least – to an employer is probably misplaced. Think of it this way: Would the company you work for think twice about letting you go if it encountered difficulties?
The shares continued to fall in value. As it happens, the company in question eventually went into administration, and of course I lost everything. OK, my original investment was just £2,000 – but the fact that my stake was once worth £30,000 has caused me more than a little amount of regret.
I used to kick myself wondering how things could have been different if only I’d sold and reinvested the proceeds in a portfolio of shares or a house deposit. Of course, I’d be a lot richer by now if I had, but I wouldn’t have learned this important lesson:
Don’t overexpose yourself to your employer
Of course, many employers offer very favourable stock incentive schemes, and in many cases, these should be taken up with relish. However, I would contend that unless you are absolutely convinced that the company you work for is going into the stratosphere, stock in your employer should not account for a considerable amount of your portfolio. If there is a lock-in period, make sure you know when it ends and make a rational decision based on your overallportfolio.