Ask yourself: Would you invest half or even your entire nest egg in a single stock? Doubtful. Most investors know that it's important to diversify. Yet, millions of workers overload their 401(k) or other employer-sponsored retirement plan with company stock.

Roughly one-third of 401(k) assets held in 1.5 million plans toward the end of 2001 was in company stock, according to Hewitt Associates, up slightly from the previous year. For example, nearly half of Microsoft's 401(k) plan assets were held in company stock. It's common to find employees holding nearly all of their plan assets in company stock, and some compound the problem by holding additional stock options.

Holding too much in a single stock, employer stock or otherwise, is risky, caution most Certified Financial Planner™ professionals, who point to the recent and highly publicized worst-case example, Enron, the energy-trading firm Enron whose collapse has wiped out the nest eggs of many workers whose accounts were brimming with Enron stock. Such dramatic declines are not limited to high-flying tech stocks. For example, in 2000, workers at blue chip stalwart Procter & Gamble, which requires workers over age 50 to hold at least 40 percent of their profit-sharing plan assets in company stock, watched the stock value drop 50 percent in just a few months.

Such dramatic declines may force retirees back to work, near retirees to postpone retirement, and some company workers to suffer the double whammy of losing their job and their nest egg. That's why financial planners strongly recommend that workers limit their exposure to company stock.

How much exposure? Around ten percent or less of your overall portfolio would be ideal, say many planners. However, realistically, it may be tough to stay below 20 percent in situations where the company matches employee contributions only with company stock, where the company strongly encourages employees to buy company stock (often at a discount), or where the stock balloons in value. Also, 85 percent of 401(k) plans restrict the sale of company stock. You may not be able to sell it before a certain age, such as 50; you may be required to hold it for a certain time, such as five years; or you may be required to hold a certain percentage, such as two to four times salary for senior executives. Check your plan for specific details.  If company stock already constitutes 10 or 20 percent of your portfolio, or you want to avoid getting that high, here are some ideas for minimizing your exposure.

First, don't avoid joining the retirement plan and certainly don't turn down the opportunity to receive company stock as part of a contribution match. After all, the match is, in essence, free money, and there can be certain tax advantages to holding company stock.

A key way to minimize exposure is to limit company stock to matching contributions and not buy additional stock inside or outside the plan. Instead, diversify by buying stock or stock mutual funds that are not closely tied to your company's industry. For example, if you work at a growth tech company, consider other alternatives such as a value stock mutual fund. Selling Microsoft and buying Intel doesn't diversify much. Be sure any mutual funds you invest in don't heavily hold stock in your employer. And of course, consider other asset classes such as bonds.

Look at the company stock in the totality of your nest egg. It may represent a reasonably small portion once you take into account your individual retirement accounts, your spouse's retirement account and any taxable retirement accounts; assuming, of course, that you have not invested in your company through those vehicles.

Regularly sell off some employer stock when you are allowed to, not sporadically or in large amounts (unless the stock is dropping fast). View the sell-off as reverse dollar-cost averaging. If the plan allows you to start selling at age 50, don't wait until you retire before divesting yourself of some company stock. You also can sell it if you leave the company.

Company executives, who typically hold significant amounts of company stock beyond the holdings in their retirement plan, often can hedge their position through a variety of specialized techniques such as exchange funds and collars where they can diversify their stock while postponing tax liabilities.

This article was produced by the Consumer Affairs Dept. of The Financial Planning Association and provided to you courtesy of Nigel B. Taylor, CFP, Santa Monica, California. If you have any questions or concerns regarding this, or any other financial topic and are a resident of Southern California, please call me at 1-800-444-2237 (California residents only please), or click on the "MORE INFO" button to arrange for a free initial consultation in the comfort of your home or office.