Bankers Lose 401(k) Bets on Firms

Workers at large banks ignore 401(k) diversification and lose $2 bln on their company stock.

Wall Street employees, who dispense financial advice to individuals and companies, aren’t following a basic investing tenet with their own money: diversification.

Workers at the five largest Wall Street banks saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2 billion last year, according to annual filings. Those losses don’t include shares received as bonuses.

Concentrated Position

Any amount exceeding 20 percent is deemed a concentrated position, said Jean Young, a senior research analyst at the Vanguard Center for Retirement Research, a division of Valley Forge, Pennsylvania-based Vanguard Group Inc., the biggest U.S. mutual-fund company. Baker said he advises clients to hold no more than 5 percent of their retirement accounts in their employers’ shares, and no more than 10 percent in any one stock.

‘Financially Astute’

The probability of having a concentrated position more than doubles when contributions are matched in employer shares, according to a Vanguard study. While 49 percent of employees who were in plans that offered their firms’ stock owned none, 5 percent allocated more than 90 percent of their portfolio to company stock in 2010, according to data from the Employee Benefit Research Institute, a Washington-based nonprofit.

Stock Bonuses

Employees typically hold the shares as long-term investments, and the losses aren’t realized unless the stock is sold. Still, financial workers are receiving more of their pay in stock. Bank of America paid traders and investment bankers who earned between $100,000 and $1 million for 2011 at least 80 percent of their bonus in company shares, people familiar with the matter said earlier this year.

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