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AS MY PERSONAL and financial life gradually became more orderly in the months after my husband’s death, I found myself wrestling with one particular investment: My late husband had spent the bulk of his working life with Union Pacific and, like longtime employees at so many companies, he’d accumulated a significant number of shares. What should I do with those shares?
My husband and I occasionally discussed the dangers of overweighting company stock—something that often happens when shares are used for the employer’s 401(k) matching contribution or they’re granted as part of incentive pay packages. Over the years, he funneled less money into company stock and instead invested in broadly diversified index funds.
Still, whenever Union Pacific paid a dividend, he’d reinvest the money in the stock. That meant his holdings kept growing. At the time of his death, his portfolio was substantially unbalanced.
Now that he’s gone, the things that were his are all I have left, along with the memories and shared experiences that those objects evoke. For me, this element of his life’s savings has become something more than simply a portion of his compensation that resulted in an unbalanced portfolio.
On the other hand, when I look at our combined assets that I now manage for my own ends, this holding seems excessive. I considered reducing it substantially and replacing it with a total market index fund. But for the moment, I’ve decided to hold onto all of the shares. Wholly rational financial decisions do not come easy. But despite my sentimentality, I’m comfortable that this choice makes sense, even if it’s imperfect, for five reasons.
First, the quarterly dividend is solid. Union Pacific has paid dividends for 120 years. This creates another long-term income stream to meet my everyday expenses, build up my cash reserve and divert into a total market index fund. My three teenagers and I are living the widow-and-orphan life and, yes, this stock has earned the “widows and orphans” moniker.
Second, over the years, I learned a lot about the company, its business and its competition, and I continue to watch this sector of the economy. I won’t accidentally forget to pay attention. Should my expectations of its long-term value prove wrong, I will need to—and want to—sell.
Third, I like the idea of continuing to grow my total worth for as long as I can. I hope to see the overweight issue resolve itself, as I add to other assets.
Fourth, I need to consider possible capital gains taxes. I don’t plan to use this money for a while, so I prefer to have the whole of it working for me, without losing a nickel to the taxman.
Finally, I find comfort in the ongoing connection to my husband’s company, and to the memories of the many good times we enjoyed with friends and colleagues through the years.
What lessons should you take away from all of this? Here are four:
Catherine Horiuchi recently retired from the University of San Francisco’s School of Management, where she was an associate professor teaching graduate courses in public policy, public finance and government technology. Catherine’s earlier articles include From Two to One, Missing a Step and Thanks, Younger Self.
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I can fully relate to your perspective. I worked for the same company for nearly fifty years. I began investing in it’s stock at age 18 via stock purchase plan and in later years stock options and awards. It’s paid dividends for over a hundred years and I have reinvested most of mine.
The result is that the stock comprises 14% of my investments. Too much perhaps, but I can’t bring myself to sell the shares. As you said, there is an emotional attachment, because everything material I have, including my pension, is the result of that job.
I see the dividends as a future income stream at a lower tax rate for my wife. Forty years ago I convinced my parents to buy 75 shares of that stock, but never could convince them to enroll in the DRIP, instead my mother used the modest dividends to buy birthday presents. When she died I inherited the same 75 shares. My parents never invested and as a result lived in retirement on Social Security alone.
Right! Same way that I haven’t yet sold my house and put the money its sale would generate into a diversified portfolio. While the value of the house probably won’t go to zero, in the 2008 Great Recession real estate values in our zip code dropped 50% (putting many deep underwater). Could have earned a pretty penny and upgraded my housing by selling in 2007 and re-purchasing in 2009.
I don’t always have to make the best financial decisions. I do have to make enough of the right financial decisions to keep myself and my family from falling into a debt trap.
I imagine the dividends from those 75 shares are DRIPping and growing now!
My father retired from Union Pacific too, and he also had lots of UP stock. My mother worked for a natural gas company that was later acquired by Enron. She had lots of Enron stock at her death, just like my father had lots of UP stock at his death. Very different results. A financial advisor advised me that the ship had sailed (and sank) for Enron, but UP stock was one major train wreck from disaster too, and recommended diversification. Glad I did just that. I do have a certificate for 580 shares of Enron stock that hangs on the wall in my office as a reminder. That is all it is worth.
Enron is indeed the cautionary tale, and many other long stable stocks (and companies) have been wrung of value then cast aside by the people who own/run the firms. I can think of several publicly traded utilities that suffered this fate.
In a way you had a two stock portfolio, one of which paid off and the other did not. Not a big enough pool to reduce the risk of non-performance. Thus the advice of the late John Bogle to own the market in its totality.