Don’t Let WikiLeaks Derail Your Retirement

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Don’t Let WikiLeaks Derail Your Retirement
LIZ DAVIDSON
Dec. 9

With all the news about WikiLeaks in the media, it’s becoming more obvious to those of us in the financial education and planning industry that this new transparency has huge implications for investing.

Today, every single investor should be asking one central question: How exposed is my portfolio to WikiLeaks and what do I need to do to protect myself? It’s coming fast and furious and now is the time to put a plan in place, before unsavory information about your investments is leaked.

By far, the most dangerous exposure is in company stock, which many employees are too heavily invested in. This is a double whammy. If your company’s reputation is decimated, you run the risk of losing both your job and a significant percentage of money you have invested in the company. Yet we have not learned from Enron. Sure, for a few years after Enron employees lost their jobs, and in many cases most or all of their retirement assets, employees pulled back, took stock (no pun intended) of their portfolios, and lessened their exposure to company stock.

But memories are short and we’re seeing resurgence in employees’ comfort level with company stock at a time when large positions are more dangerous than ever. Now we are living in a world of instant, viral media, where even rumors can have a dramatic impact on a company’s brand, yet far too many of the employees we counsel are lulled into a false sense of security, feeling they are one of the lucky ones to be employed at a blue chip company that has weathered the recession. Where they should see danger, they actually see safety—a false sense of security indeed.

Many of the employees who call our financial helpline or attend financial workshops have well over 10 percent in company stock, and it is not uncommon to hear 60 percent. Most people know they need to do something about it but have a series of excuses as to why they don’t. They lack the urgency to make any changes. Here is some of what we hear:

• “My company is diversified, not only in the U.S. but around the world, so the rule of thumb doesn’t apply to me.”
• “The company I work for is no Enron, and we don’t cook our books, so I don’t have to worry.”
• “My company stock is the best performing asset in my portfolio. Why would I cut back on that?”
• “This stock does well in a recovery so I’ll wait to sell it when the market turns around.”
• “I bought it for 35 and it is at 20 now so I’ll wait until it gets back to 35 and then I’ll sell.”
• “My company match is in stock shares and I like it that way. Besides, since I work here, I know what is going on with the company.”

All of these excuses sound viable, but the problem is we are facing increasingly difficult and unpredictable threats. BP shareholders are very familiar with unpredictable outcomes. Who would have dreamed their company would have the worst offshore oil spill in history, leaking an estimated 4.9 million barrels of oil into the Gulf of Mexico before being capped on July 15, 2010? (BP’s stock price dropped from a high of $62.38 per share to a low of $26.75 during the crisis.)

We could easily see the same kind of thing happen through a different form of leak: a paper leak. WikiLeaks is a serious threat to private industry all over the world. In a recent exclusive interview with Andy Greenberg of Forbes, WikiLeaks’ founder Julian Assange states that nearly half of the unpublished material he has is on the private sector, including a “megaleak” involving a major bank. Whether it is a bank, insurance company, manufacturing firm or any company in any sector, damaging information can be stolen and leaked to the general public and published for immediate access. A leak could damage a company’s reputation, create an unfavorable public perception, instill mistrust and garner negative press. This is one of those unpredictable “out-of-the-blue” incidents that could cause the stock value to fall.

In an instant, WikiLeaks and other individual company risks can derail the retirement plans of employees and stock holders who don’t follow the rules of thumb and act diligently to avoid risk.

Tips for protecting your portfolio:

Review your portfolio to make sure that no more than 10 percent of your assets are invested in one company. Remember to include stock options, stock awards, matching contributions in the 401(k) and stock held outside of your employer. Holding more than 10 percent in any one stock is often considered overexposure, so if you currently have more than 10 percent in one company, set up a strategy to reduce your holdings. You don’t necessarily have to panic and sell all your shares at once. Consider reducing your stock position over a fixed time period such as a year.

Diversify your assets over different sectors. Consider what would happen if there was a substantial information leak from a major bank. What would that due to reduce the credibility of all bank stocks and financial service companies? Working with your broker or using a service such as Morningstar.com, determine what percentage of assets is in each sector of the market. Many mutual funds hold the same stocks so you might believe that your assets are diversified when in reality your portfolio may actually be heavily weighted in a single sector or in specific individual stocks putting you at risk.

Invest with management in mind. The WikiLeaks problem highlights something that smart investors have known for a long time: study the management team and the way they do business. A company’s reputation is its biggest asset, and the very real threat of unauthorized access to inside information makes ethics of management and strength of culture even more important. Study the people behind the company, not just the balance sheet.

The growth of the age of access to instant information brings with it tremendous opportunities for investors. We may even see resurgence in the popularity of socially responsible investing, but not just the “green” companies. After years of greed on Wall Street, investors may require ethical management not only because of their personal values but because the growth projections of their investment rely on it. Investors will demand to know how companies will fare when their internal memos are broadcast around the world in an instant. The socially responsible and ethical companies have much less risk in this area.

We live in an age where we are bombarded with additional threats that weren’t even considered 20 years ago. Hackers create computer viruses just to wreak havoc on unsuspecting people, and those same types of people can post stolen information anywhere. Investors need to change with the times to protect themselves.

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff Certified Financial Planner™ professionals.

blogs.forbes.com

the Wikileaks cereal can't be far away ..................................

[Cujo]

Good sales pitch.

[dirtydog]

^Hmmmm, they aint paid us for this advertisement......

[DrB0b]

Dear Doctor,

Last night I noticed a large hairy oozy growth on the tip of my knob. Could this be because I read some wikileaks cables last week? I left my computer turned on when I went to bed and I think wikileaks may have raped me in my sleep. I also left some loose change on the sideboard and I'm sure wikileaks stole it when it was in my neighbourhood causing global warming and foetal alcohol syndrome. I sent an email to the CIA and they said that it was very likely indeed and that wikileaks will cause the deaths of trillions of people. They then arrested me for reading their reply because they said that all government emails are now a matter of national security.

Will the world survive the global wikicrisis?

[Itchy]

Financial Advisors - Fucking Carpet Baggers - every one of them.