I admire devotion to a job and the company, but this story by Susan Tompor of the Detroit Free Press drives me nuts.
"Worker's Gamble with Ford Stock"
Here's the lead:
"From day one, Brian Pannebecker decided to put his 401(k) money into Ford Motor Co. stock. Only Ford stock. Now, the red ink at Ford has left his 401(k) in the red, too. Pannebecker, 47, an hourly worker at the Ford Sterling Plant in Sterling Heights, has set money aside out of each paycheck for the past 10 years. Ultimately, he put $72,000 into his 401(k). Now, he's got roughly $36,000 in his 401(k) -- and all in the Ford stock fund. And he's still buying Ford stock. 'I know it's a gamble,' he said."
It's more than a gamble. Nothing personal against Brian Pannebecker, but it's a stupid idea.
Even if Ford stock triples or quadruples in value (an unlikely outcome at this point), this man's 401(k) balance will only be about where it should have been if he had originally created a well-diversified portfolio.
Pannebecker is not alone. The article goes on to point out:
"The overall Ford 401(k) had nearly 40% of the assets invested in Ford stock as recently as 2004. The percentage has fallen with the stock price, down to 22.5%."
What an incredible stat -- 40%! The sad reality is that the percentage has fallen to 22.5% not because Ford workers are getting smart and baling on the stock. The decline is most likely due to simple mathematics -- a shrinking numerator (Ford stock has continued to tank) and a growing denominator (Ford workers continue to contribute money to the 401k plan plus the stock market has been up since 2004).
It's not like Ford workers don't have choices. I know the Ford 401(k) plan inside and out since I am based in the Detroit area and have several Ford clients. The plan is run by Fidelity and has many good investment choices even if not all of them are Fidelity's best. (Off topic note to Ford execs -- It has always puzzled me that a company as large as Ford does not have access to some of Fidelity's top mutual funds. You can and should bargain for better choices.)
It's not the stock. It's the risk.
The point is not whether Ford stock is a good investment, but rather it's a question of risk and how to manage it properly.
Let's use Pannebecker as an illustration. We know from the article that he is an hourly worker at a Ford plant and he is age 47. This information means that Pannebecker faces several enormous risks tied directly to his employer's fortunes:
1. Pannebecker's job is at risk. Ford is not a growing, vibrant, or financially sound company. It is just the opposite. Job security is not working in Pannebecker's favor, despite being a UAW member.
2. Pannebecker's pension is at risk. In a worst case scenario, Ford collapses and the pension plan is eliminated. Yes, the Pension Benefit Guaranty Board provides a back up, but it may be at a substantially reduced amount from what Pannebecker is expecting or could have otherwise earned. In a more likely scenario, Ford could simply freeze the pension plan where it is today with no further benefits accrued. The UAW wouldn't like it but what happens if that's the key to saving the company and future jobs?
Add to this mix Pannebecker's 401(k) investments in Ford stock and you have an insane recipe for the perfect storm -- he loses his job, his pension, and his 401(k) investments all in one shot.
That's probably NOT the retirement trifecta he's hoping for.
At age 47, with a short road to retirement, there aren't too many prospects for Pannebecker to recover.
That's why it's not about the stock. It's about the risk.
Don't get me wrong. I want Ford to succeed. I hope these investors all realize great gains on their Ford stock.
But it's a huge risk and a gamble that may ruin many retirement plans.
Related Tags: Ford 401(k), Ford stock, retirement, gambling, gamble, investments
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