Saturday, February 16, 2002

Personal Finance

Enron employees blew it

        This might sound cold. And it might read unfeeling. And it might incur a flurry of disagreeable phone calls.

        But it should be said: Enron employees' loss of their life savings is their own fault.

        Shocking — and probably a bit harsh. But let me explain.

        Clearly, many of the media reports and most of the politicians haven't.

        Reported: Enron matched workers' 401(k) contributions with company stock, which could not be sold until workers were 50 years old. Sixty-percent of the 401(k) assets were in Enron stock.

        True, and true. But the two facts have little to do with each other.

        Enron matched with company stock 50 cents of each $1 contributed, up to 6 percent of a worker's salary. So if an employee wanted to contribute 6 percent — and put those dollars into an index fund — Enron stock would make up 33 percent of the 401(k), perhaps a little more if it returned more than the market.

        But most people put in more than 6 percent, mathematically lowering their concentration of the company match. Therefore, it's clear that Enron employees were pouring their own money into company stock, violating the cardinal rule of investing: Don't put all your eggs in one basket.

        Investing experts advise against having more than one-fifth of your assets in a single stock.

        Indeed, 89 percent of the Enron stock in its 401(k) plan was bought with employee contributions and could have been sold at any time. Sort of — and that brings up the next misunderstanding.

Blackout period

        Reported: Enron employees were prohibited from selling anything in their accounts during a span in October. During that time, the stock value plummeted.

        True, and true. But again, the two don't have much to do with each other.

        The lock-down was an administrative change planned months before. And it doesn't matter what week it actually started.

        Enron stock peaked at $92 a share in August 2000, more than a year before the debacle, and had fallen by half by June 2001, still months before the debacle.

        The steady decline continued into October. Some claim they were told the blackout started Oct. 19, when shares closed at $26, others say Oct. 29, when shares closed below $14.

        The point is, shares were down almost 72 percent before the earliest reported blackout date. And almost all of those shares were shares that could have been sold at any time, by anyone, of any age or tenure.

        What happened to Enron employees is outrageous. They were misled — but so are millions of others who buy inappropriate investments. Let's just be sure we don't misplace our outrage; instead, let's learn from their mistakes.

        • Diversify your investments. Don't buy stock that is already given for free.

        • Cut your losses, or take your profits. Sell a declining investment to buy a winner, especially if you can still sell for a gain.

        • Watch the executive stock sales — they're public information. Execs' actions are louder than their words.

        Contact Amy Higgins at 768-8373;; or 312 Elm St., Cincinnati 45202. She regrets that she cannot reply to all individual questions.


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