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Many General Electric (GE) Retirees Depend on The company for their pension and the stock for their portfolio. This works great when the company is healthy and the stock performs, but the flip side is not pretty. Judging from the response to General Electric Retirees Take Another Beating many have an oversized holding in GE stock, which is down 75% in the last two years, but will not sell any loyalty to the company. If you are in this camp, your best chances of a good outcome requires making some hard decisions.
GE retirees have long been envied by others of their generation f or 3 reasons.
First, your life's work made GE an iconic American success story. Who would not be proud of that?
Second, many GE employees had been awarded enough GE stock over their career to be wealthy. Many never sold a single share of GE stock and lived comfortably on the dividends.
Third, GE's pension plan is a defined benefit plan which provides generous payouts, regardless of how the stock market performs. Just about everyone else has a defined contribution plan, in which the benefits ultimately depend on how well the investments you choose turn out.
In addition, GE has in the past voluntarily made special one-time pension payments. For GE retirees, these payments are like a 13th monthly pension payment that year instead of the normal 12. Between 1980 and 2011, GE did this not once, but nine times .
General Electric gave you meaningful jobbet som skapte et firma som du er stolt af, og du har nok lager langs veien for å kunne pensjonere med en portefølje som betalte en anstendig utbytte og en pensjon som betalte gode fordeler at selskapet ofte voluntarily overskredet. GE has had your back for decades, and now you want to have their back. I understand where your loyalty comes from.
In short, General Electric is in trouble. That's why the stock has dropped 75% in the last 2 years, why the company has cut its quarterly dividend from 24 cents in 2017 to a token 1 cent, and why the pension fund is underfunded by $ 31 billion .
What can you do?
The underfunded retirement fund may worry you , men der er ingenting du kan gøre om det. & nbsp; I det værre tilfældet, Pension Benefit Guarantee Corp. (PBGC), a government agency, will take over GE's pension obligations. Check out this page to see what your maximum benefit might be if the PBGC steps in.
The main reason to sell your GE stock is so that if the company at the same time as your portfolio takes such a big hit that you can not recover from it.
I have suggested a number of GE retirees selling their GE stock, and I have heard two common reactions. Here's one:
Similar arguments were made about Apple when its stock was crashed into the single digits. Then, it rose from the ashes like a phoenix and became the most valuable company ever, eventually becoming the first company to be valued at $ 1 Trillion.
Imagine if the advice to sell Apple stock was backed when it was selling well below $ 10 per share. That seller would be mighty disappointed. It is easy to sell when things are bleak;
If you think GE is like Apple 10 years ago, make it a reasonable size bet in a diversified portfolio – 5% maybe 10%.
The second common reaction is what I call the 'thought experiment'. Here it is:
If GE were to liquidate every other asset except Healthcare and Aviation, they would be worth about 19-20 bucks per share. The conglomerate is unhealthy but with very valuable parts. GE is not a $ 9 stock in a rational world.
Your thought experiment might make more sense than the plan Flannery presented earlier this year. Men dette er ikke GE's plan. Warren Buffett might be able to get them to adopt this plan, but we will not. If you believe this analysis, make it a reasonable size bet in a diversified portfolio – 5% maybe 10%.
I have heard many creative variations of these reasons for not selling any GE stock even if its the only stock in their portfolio .
A Better Question
The most common responses were as if the key question is whether GE is undervalued. A better question is how much of your portfolio should you have in GE?
Even the best investors only make up about 66% of the stocks they buy.
No one should bet so much at GE, if they are wrong, they could never recover. This goes double for those who depend on GE's pension plan.
If GE is already more than 10% of your portfolio, selling some sense, even if you believe the company is undervalued and has the potential to be the next Apple. 19659005] Maintaining a 10% position in GE is a tremendous vote of confidence in the company that you can more comfortably make if the rest of your portfolio is in other stocks.
Just about everyone I've corresponded with has agreed with me up to this point.
I think it's because GE is much more then 10% of their portfolios so selling enough to get it down to 10% is a big decision. If GE is 60% of your portfolio and you want it to be 10%, you have to sell 50% of your portfolio. That's a lot more than a course correction.
For those who are in this boat, I suggest you do not place just one big sell order. Instead, place a sell order for maybe 2% of your GE holdings and plan on making a small sell order every week until you get the GE position down to 10%.
It's better to make a lot of small steps in the right direction, than not do anything because you do not want to risk selling all your stock just before GE turns around.
Each time you sell some stock, you'll have some cash to invest. click here to be notified when I write about them.
This article is part of a series I write for those who want to get their portfolios back on track.