Diversication of assets - risk etc
Discussion
Through various company sharesaves, bonuses etc, I've built up a sizeable holding of shares in the company I work for (FTSE100).
It probably equates to around 50% of my liquid assets (i.e not property / pension). This percentage is only likely to increase over the next few years as more bonuses/share schemes mature.
Do people have any strategies / advice on how much risk I should be prepared to accept in holding so much in 1 share? I think there are future gains (in the SP) in the next 3-5 years, but I need to temper that against the risk of a large holding in 1 company.
Any thoughts / advice gratefully received.
It probably equates to around 50% of my liquid assets (i.e not property / pension). This percentage is only likely to increase over the next few years as more bonuses/share schemes mature.
Do people have any strategies / advice on how much risk I should be prepared to accept in holding so much in 1 share? I think there are future gains (in the SP) in the next 3-5 years, but I need to temper that against the risk of a large holding in 1 company.
Any thoughts / advice gratefully received.
Edited by thekingisdead on Monday 2nd February 12:36
I have always taken the view that you have enough invested in the company you work for.
It is OK to have some extra skin in the game, but if it all goes bad, you could end up losing your job and your savings all on the same day.
As such, I have always diversified in the main and sold shares in the co I work for and bought shares in different companies / sectors. Keep a few, but treat them like a traditional investment.
As you say, you continue to have new options / schemes etc coming through so if there is an upside, you will still benefit, but this way, the downside is a bit more limited.
Ask yourself -
If you didn't work there, would you have half your savings in 1 company?
As an employee - do you have any information that says it is a safe bet? (in my case, being on the "inside" seems to mean I have less of an understanding as to the share price not more......)
Bob
It is OK to have some extra skin in the game, but if it all goes bad, you could end up losing your job and your savings all on the same day.
As such, I have always diversified in the main and sold shares in the co I work for and bought shares in different companies / sectors. Keep a few, but treat them like a traditional investment.
As you say, you continue to have new options / schemes etc coming through so if there is an upside, you will still benefit, but this way, the downside is a bit more limited.
Ask yourself -
If you didn't work there, would you have half your savings in 1 company?
As an employee - do you have any information that says it is a safe bet? (in my case, being on the "inside" seems to mean I have less of an understanding as to the share price not more......)
Bob
The company you work for is in the FTSE for a reason, if it's also bunging shares out to all and sundry, it will keep all its essential staff and should continue to prosper.
A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
The other 50% could then be diversified either out of UK or maybe a sector not covered by your employer.
Although how you diversify depends so much on age, target, needs, fear etc.
A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
The other 50% could then be diversified either out of UK or maybe a sector not covered by your employer.
Although how you diversify depends so much on age, target, needs, fear etc.
jeff m2 said:
The company you work for is in the FTSE for a reason, if it's also bunging shares out to all and sundry, it will keep all its essential staff and should continue to prosper.
A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
This is the worst "advice" that I've read on this forum for a long time.A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
IsaacNewton said:
This is the worst "advice" that I've read on this forum for a long time.
Isaac,Are you referring to the comments about the final salary scheme? If so, ask those on the Monarch Airlines scheme just how reliable it all turned out to be. And if John Lewis is closing its final salary scheme, you know the writing is on the wall. FS/DB schemes are getting/ have got unaffordable and making sure that the promise is backed up by some money is only sensible, that's all.
If you weren't, apologies!
http://www.theguardian.com/business/2015/feb/02/jo...
Ginge R said:
IsaacNewton said:
This is the worst "advice" that I've read on this forum for a long time.
Isaac,Are you referring to the comments about the final salary scheme? If so, ask those on the Monarch Airlines scheme just how reliable it all turned out to be. And if John Lewis is closing its final salary scheme, you know the writing is on the wall. FS/DB schemes are getting/ have got unaffordable and making sure that the promise is backed up by some money is only sensible, that's all.
If you weren't, apologies!
http://www.theguardian.com/business/2015/feb/02/jo...
Inkyfingers said:
Indeed. A few years ago, many would have thought that a company like Tesco, or BP would be bomb proof.
If I was the OP, i'd be sensibly looking around to diversify.
Quite. In the FTSE 100 I believe the chances of a single share jumping in value for some reason (mergers, big innovations or something like that) are quite slim, and outweighed by the chances of a single share dropping in value (profit warning, bankruptcy etc.). In smaller companies, those two possibilities are a bit more balanced IMO.If I was the OP, i'd be sensibly looking around to diversify.
Spreading the money around the index reduces the effect of both, but will proportionally reduce the risk of loss more, since there appears to be more of that risk anyway. Unless you have insider knowledge that the price of the shares you hold will jump, I'd want to diversify.
It's funny isn't it, one of Warren Buffets well known quotes is " Diversification is protection against ignorance. It makes little sense if you know what you are doing"
While I think most of us would agree that to diversify makes sense, you don't want to keep all your risk in one place I guess he has a point in the sense that if you have to diversify it means your not confident in what your investing in and I guess if you don't have the confidence then why make the investment in the first place.
To some extent I'm not convinced about diversification, during a bull market most stocks go up anyway I guess if anything diversification would work best in this kind of market where certain things may go up and certain things may not.
During a bear market however, where technically diversification would make the most sense most asset classes tend to get hit and they all go down either way, so how does it help there?
While I think most of us would agree that to diversify makes sense, you don't want to keep all your risk in one place I guess he has a point in the sense that if you have to diversify it means your not confident in what your investing in and I guess if you don't have the confidence then why make the investment in the first place.
To some extent I'm not convinced about diversification, during a bull market most stocks go up anyway I guess if anything diversification would work best in this kind of market where certain things may go up and certain things may not.
During a bear market however, where technically diversification would make the most sense most asset classes tend to get hit and they all go down either way, so how does it help there?
twinturboz said:
It's funny isn't it, one of Warren Buffets well known quotes is " Diversification is protection against ignorance. It makes little sense if you know what you are doing"
While I think most of us would agree that to diversify makes sense, you don't want to keep all your risk in one place I guess he has a point in the sense that if you have to diversify it means your not confident in what your investing in and I guess if you don't have the confidence then why make the investment in the first place.
To some extent I'm not convinced about diversification, during a bull market most stocks go up anyway I guess if anything diversification would work best in this kind of market where certain things may go up and certain things may not.
During a bear market however, where technically diversification would make the most sense most asset classes tend to get hit and they all go down either way, so how does it help there?
That's a very interesting point, but I still fundamentally disagree.While I think most of us would agree that to diversify makes sense, you don't want to keep all your risk in one place I guess he has a point in the sense that if you have to diversify it means your not confident in what your investing in and I guess if you don't have the confidence then why make the investment in the first place.
To some extent I'm not convinced about diversification, during a bull market most stocks go up anyway I guess if anything diversification would work best in this kind of market where certain things may go up and certain things may not.
During a bear market however, where technically diversification would make the most sense most asset classes tend to get hit and they all go down either way, so how does it help there?
When I had a limited company, I re-invested part of the profits to buy new equipment etc, in order to help the company grow sustainably, the rest I used to buy property and slung a bit in my pension. I could have invested all the money back into the company, but the company didn't need it, and while the company was strong and had a good reputation, even the best companies can be threatened by a decline in the market, or buy competitors slashing their prices in order to win more market share. The reason I didn't invest more was nothing to do with confidence, it was simply prudence.
Also, in a bear market, many stocks may suffer, but they won't all suffer at the same rate.
twinturboz said:
During a bear market however, where technically diversification would make the most sense most asset classes tend to get hit and they all go down either way, so how does it help there?
A previous poster mentioned RBS. This is what diversification protects against...Diversification is not protect against systematic risk (factors that affect the market as a whole) which I think you are saying.
It does protect against specific risk - risks associated with individual assets.
IsaacNewton said:
A previous poster mentioned RBS. This is what diversification protects against...
Diversification is not protect against systematic risk (factors that affect the market as a whole) which I think you are saying.
It does protect against specific risk - risks associated with individual assets.
Sorry this is off topic from the op but yes I agree in the above scenario. If you have investments in shares then it makes sense to diversify into say property or bonds etc to mitigate the specific risk as you say. Diversification is not protect against systematic risk (factors that affect the market as a whole) which I think you are saying.
It does protect against specific risk - risks associated with individual assets.
Inkyfingers said:
Also, in a bear market, many stocks may suffer, but they won't all suffer at the same rate.
This was my point that if your diversifying within a share portfolio, simply to try and protect yourself from a market decline then I'm not convinced your better off holding shares in 15-20 different companies as opposed to say maybe a concentrated portfolio of 5-6 companies that you've thoroughly researched and having a hedge instead.At least if the market declines your hedge is compensating rather than your portfolio declining across the board.
Thanks for the input everyone.
I sold just under 50% of my (eligible) holding today. I'd made a healthy profit and if there are future gains I still have a reasonable holding (and more options / bonuses maturing) to still benefit, didn't seem worth the risk not to cash some profit. Now I just need to resist a new car / watch etc :-)
I sold just under 50% of my (eligible) holding today. I'd made a healthy profit and if there are future gains I still have a reasonable holding (and more options / bonuses maturing) to still benefit, didn't seem worth the risk not to cash some profit. Now I just need to resist a new car / watch etc :-)
jeff m2 said:
The company you work for is in the FTSE for a reason, if it's also bunging shares out to all and sundry, it will keep all its essential staff and should continue to prosper.
A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
The other 50% could then be diversified either out of UK or maybe a sector not covered by your employer.
Although how you diversify depends so much on age, target, needs, fear etc.
I quoted myself, as I don't want to necessarily pick on one adversary.A couple of things to check coverage on dividend, stable?
Have a look at the trustee reports on all the pension funds, it will have more than one. Will the company have to make any large contributions to the trustees to keep them in a position of paying the retired employees. (there is a trend that retired workers grow faster than employees)
Once you are satisfied that there are no surprises and that you consider the term "invest in what you know" makes sense, then you could consider this to be your UK investment.
In other words you could treat this as you would an investment in a FTSE index fund without the initial charge and annual exp.
The other 50% could then be diversified either out of UK or maybe a sector not covered by your employer.
Although how you diversify depends so much on age, target, needs, fear etc.
We are discussing gifted shares, not options, so it's not a boat load of money.
With regard to RBS, not relevant as i suggested checking coverage and Reading the trustees report
The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
Investing away from the FTSE 100.
The 100 is not as diversified as some believe. Oil, gas & Mining make up 25% on the index. There is pull from the market, there is also a larger pull in the index itself.
Anybody have an 100 index fund in 2014, how did you do?
To even consider diversification one must understand the size of the 100, size of the UK market, world equities and then the bond market and more recently loose cash. Once you put things in perspective the FTSE 100 may not look quite so good. I am not saying put all your money in other markets, but at least consider the 250.
Returning to the fact it's gifted not options, by investing other money elsewhere (other than the 100) he should, assuming he is also making contributions, soon pass the 50% in his invested assets, because his gifted shares quite greatly governed by the index itself. It doesn't mean it's a very good or a very bad investment just one that will very very likely follow the 100.
I could probably write a few pages on indexes, but just consider the performance over recent years of Global real Estate funds, easily averaging double digit returns. Money that traditionally would be in Bonds, doesn't want the volatility of Market has been moving into high end real estate. Quite apparent in UK I would have thought. It's not the housing shortage driving these prices it's loose cash with no where to go. Jim & Sally looking for a 3 bed semi are not in the market for Bishops Ave or the Docklands.
Sorry for going a bit off topic, but the 100 is not diversification.
PS I do not recc Global Real Estate, just an example.
Edited by jeff m2 on Tuesday 3rd February 18:05
jeff m2 said:
I quoted myself, as I don't want to necessarily pick on one adversary.
We are discussing gifted shares, not options, so it's not a boat load of money.
The OP mentions that the shares have been aquired by bonuses and share saves making up 50% of his liquid asset. This could easily be a six figure sum, so could well be a boat load of money.We are discussing gifted shares, not options, so it's not a boat load of money.
jeff m2 said:
With regard to RBS, not relevant as i suggested checking coverage and Reading the trustees report
The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
Not sure why you mention trustees, RBS's problem wasn't with a DB scheme.The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
I don't think you understand why RBS is relevant to the OP's original position, but another poster has mentioned it.
jeff m2 said:
the 100 is not diversification.
Sorry, but you don't understand what diversification is. Investing in an index, like the FTSE100, provides diversification against risks specific to individual companies that make up the index.IsaacNewton said:
jeff m2 said:
I quoted myself, as I don't want to necessarily pick on one adversary.
We are discussing gifted shares, not options, so it's not a boat load of money.
The OP mentions that the shares have been aquired by bonuses and share saves making up 50% of his liquid asset. This could easily be a six figure sum, so could well be a boat load of money.We are discussing gifted shares, not options, so it's not a boat load of money.
jeff m2 said:
With regard to RBS, not relevant as i suggested checking coverage and Reading the trustees report
The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
Not sure why you mention trustees, RBS's problem wasn't with a DB scheme.The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
I don't think you understand why RBS is relevant to the OP's original position, but another poster has mentioned it.
jeff m2 said:
the 100 is not diversification.
Sorry, but you don't understand what diversification is. Investing in an index, like the FTSE100, provides diversification against risks specific to individual companies that make up the index.lm1985 said:
For an index to provide diversification, it must comprise of a minimum number of equities, none of the equities must significantly influence the volatility of the index and the equities must be distinct from a geographical and economic perspective. There are a couple of other factors but my brain is weak right now. Interesting though, that BP was influential in the index rise today, and to a lesser extent, the volatility..?
I don't have a great deal of understanding regarding diversification of risk with regards to assets.For an index to provide diversification, why would there be any other conditions other than the index consisting of at least two assets that aren't perfectly correlated?
IsaacNewton said:
jeff m2 said:
I quoted myself, as I don't want to necessarily pick on one adversary.
We are discussing gifted shares, not options, so it's not a boat load of money.
The OP mentions that the shares have been aquired by bonuses and share saves making up 50% of his liquid asset. This could easily be a six figure sum, so could well be a boat load of money.We are discussing gifted shares, not options, so it's not a boat load of money.
jeff m2 said:
With regard to RBS, not relevant as i suggested checking coverage and Reading the trustees report
The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
Not sure why you mention trustees, RBS's problem wasn't with a DB scheme.The trustees report would not only indicate the need of any future funding that may weigh on the company, but will also provide good information on his pension with that company.
I don't think you understand why RBS is relevant to the OP's original position, but another poster has mentioned it.
jeff m2 said:
the 100 is not diversification.
Sorry, but you don't understand what diversification is. Investing in an index, like the FTSE100, provides diversification against risks specific to individual companies that make up the index.I'm not going spend a lot of time demonstrating whether i know how an indeex works.
But the 100 hit a tad under 7000 on the last day of 99, I trust you know where it is today!
Check jan 1 to Dec 31 2014! Representative of UK growth!
Now check the 250.
The diversification within the 100 is limited to it's cap weighted contents.
Have you ever owned a FTSE 100 fund?
No need for you to google the 250 vs the 100 FT has done it for you.
This is 3 years but 3,5, 10 look similar. try it.
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