A reminder: Don't put all your eggs in one basket

IBM's stock crashed Tuesday as the company warned on earnings.

IBM employees on Tuesday lost more than $400 million in their 401(k) retirement accounts due to the collapse in the company's stock price.

Nearly 150,000 company employees held a total of 5.77 million shares of IBM stock $(IBM)$ in their 401(k) accounts, according to the most recent filing. The stock price just plummeted more than $70, a staggering 25%, as the technology giant warned that second-quarter earnings would be below expectations. The losses work out an average of $2,700 for each worker participating in the plan.

IBM could not be immediately reached for comment.

"If you just own IBM stock, it's a bad day in the market - but if you work there, it's a catastrophe," said Samantha Prince, a professor of law at Penn State Dickinson Law and an expert on 401(k) plans. "You aren't just watching your company miss earnings; you are watching the company that pays your salary simultaneously slash your retirement timeline by years."

Holding a lot of company stock in a 401(k) "can create financial double jeopardy," agrees Scott Bishop, managing director of Presidio Wealth Partners in Houston. "Your paycheck, career, health insurance and retirement savings may already depend on the company, so a large employer-stock position can make your financial security dependent on that same company as well."

Read from the archives: Opinion: IBM's new 401(k) strategy could threaten retirement plans for its workers

To be sure, today's losses by IBM are small in relation to the overall size of the 401(k) plan, which at the reporting date held net assets of $59 billion. But losses are still losses.

Holding company stock in 401(k) plans is common.

"I have had this conversation [with clients] many times," Bishop said.

"Employees often feel safer owning the company they know, but that can be familiarity bias masquerading as investment analysis," he said. "Knowing the company's products, culture or management does not make the stock diversified - or protect it from an unexpected earnings disappointment, regulatory problem or industry disruption."

"Corporate loyalty often clouds financial judgment," Prince said. "People get swept up emotionally in their company and see investing in its stock as a way to capitalize on their own hard work."

"It's natural for employees to have pride where they work, but emotional investing is a risky retirement strategy," Prince said. "Hitching a paycheck, benefits and future nest egg to the exact same company violates the golden rule of finance: Don't put all your eggs in one basket."

Bishop said he doesn't necessarily discourage clients from holding company stock, but advises them to think about it hard.

"The important question is not, 'Do I believe in my company?'" he said. "It is, 'What would happen to my overall financial plan if both my job and this stock were impaired at the same time?'"

This, famously, happened to large numbers of Wall Street bankers during the global financial crisis of 2007-'09. (Before you indulge in too much schadenfreude, be aware that the people right at the top, who bore the most responsibility for what happened, mainly walked away with vast sums of money. In many cases they had quietly, or not so quietly, cashed out stock along the way.)

It also happened to staff at energy trading company Enron, which, in the comparatively innocent days of 2002, was briefly the world's biggest and most spectacular bankruptcy.

Staff there lost over $1 billion in the collapse, which took place, like many collapses, in a matter of weeks. Naturally many of the executives had also cashed in stock and options before this happened.

Insiders always think they have an edge, but they often don't. Famous Boston fund manager Jeremy Grantham recalled in his autobiography one of his first forays into stock picking as a young man. He bought shares in a company on the urging of a family friend who worked at it, and "had most of his wealth, including his pension, tied up in the company's shares." The company imploded and the stock went to zero "with little preamble," Grantham wrote.

The friend knew far less about the company than he thought. He lost his job and most of his wealth at the same time.

If you want to know how much you already have invested in your company, just take your annual salary (after tax), and multiply it by the number of years you were hoping to work there - in many cases this may be until you are 65, or even later. This measure, while inexact in many ways (technically you should "discount" future earnings according to your "discount rate," but then you would need to factor in possible future raises), will at least give you some idea of what you already have invested in the company just through your job. It may be more than the total value of your 401(k).

Do you really need any more?

-Brett Arends

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 14, 2026 15:36 ET (19:36 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.