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The Lesson of Best Buy Stock

Beware of company stock in your retirement plan account.

In Minnesota, we stick by our local companies.  That is the Minnesotan thing to do. Our parents—mostly Minnesotans themselves—taught us that way of thinking.

We shop at Target, by 3M Post-it notes, and load up on General Mills and Hormel products at Super Value.  And we pay for it all from our U.S. Bancorp and TCF Financial checking accounts.

It is sad to see one of the most nationally recognized Minnesota companies fall on hard times.

Last week Best Buy reported their third quarter earnings results that were weaker than earnings analyst forecasts.  The stock quickly traded at a multi-year low price level.

The recent news on Best Buy has not been at all good for shareholders. The recent news has been much worse for Best Buy employees and their participation in the Best Buy 401(k) retirement plan. 

Like most Minnesota public companies, Best Buy offers shares of company stock as an option in their company retirement plan menu. Readers of my blog posts would not be surprised to learn that company stock is a popular investment option in many individual company retirement plan accounts.

According to public company retirement plan database sources, the employees of Best Buy own just over 17% of their company retirement plan assets in Best Buy stock. Not all Best Buy employees own the stock in their company retirement plan account; but approximately 17% of the entire company retirement plan assets are invested in Best Buy stock.

From Thanksgiving Day 2010 to Thanksgiving Day 2012, Best Buy stock has declined just over 74% in value. By any long-term, buy-and-hold investment benchmark, that qualifies as an investment disaster of once-in-a-lifetime proportions.

In order to “get their money back” Best Buy company retirement plan participants would need an investment return of just over 284%.

Best Buy employees took a huge risk tying both their working career and their retirement plan account investment performance to the fortune of the company they worked for.

Best Buy never thought to insulate their company employees and company retirement plan participants from a potential stock disaster. Neither did the so called professional consultants that advised Best Buy on human resource matters like this one.

Does anyone remember Enron? The same double edged disaster—company employee jobs and company employee retirement plan accounts—wiped out Enron employees in 2004. The failure of the company, and the company stock, were to blame in both cases.

It is financially dangerous and irresponsible risk management to remain heavily invested in your company stock in your company 401(k) retirement plan account.  Even in a good economy and a good stock market, the most watchful investors can have their careers and their lives changed forever.

Take the time to reassess the amount of company stock risk you are currently taking in your individual company 401(k) retirement plan account. The good and hard working citizens of Minnesota don’t need to see more friends and family go through another Best Buy company stock and company retirement plan disaster in the future.

Ric Lager
Lager & Company, Inc.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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