GE’s Fall off the Stock Market Cliff – a Lesson in the Value of Self-Direction

Published on June 26, 2018

Over the past year, the value of General Electric Co.’s stock experienced a $140 billion drop. To give you an idea of the significance of this epic decline on the stock market, a Wall Street Journal article reported that this “was twice the amount that vanished when Enron Corp. collapsed in 2001 and more than the combined market capitalization erased by the bankruptcies of Lehman Brothers and General Motors during the financial crisis.”

This means that the retirement savings of untold people—employees with company stock and other shareholders—took a nose dive that will be extremely hard to overcome. The author pointed out some human errors that lay underneath the decapitalization and the stock market’s cyclical fluctuations. Lack of a financial plan, savings objectives, asset allocation, and understanding of risk were among them, as were:

• Overweighted portfolios with stock holdings that are not evaluated periodically. The author called this “survivorship bias.” What was once valuable may no longer be delivering the same high level of expected returns.
• Lack of portfolio diversity. Sure, it’s nice to get company stock as part of a benefit package (from the same employer that is paying your salary), but putting all of one’s retirement eggs in one nest, so to speak, lacks diversity in terms of risk and asset allocation.

As the author noted, the fall in GE’s shares caused a lot of financial pain for many stockholders. Investors who have self-directed retirement plans, however, don’t typically teeter on the edge of the stock market cliff. That’s because they include alternative assets in their plans, and avoid falling victim to the ups and downs of the stock market (especially those cataclysmic falls).

If you’re comfortable making your own investment decisions, understand certain alternative assets, and would like to include them in your retirement plan, self-direction can be a great way to diversify your retirement portfolio. If you’re already investing in real estate, precious metals, commodities, equity funding or other nontraditional investments, consider including them in a self-directed retirement plan. Want to know more? Read up on self-direction as a retirement wealth-building strategy in our white paper library and on our website… or contact our helpful team for answers to your questions at 1-888-857-8058 or Info@NextGenerationTrust.com.