Dave Says…Too Much Risk

Dear Dave,

I have some company stock my grandparents bought for me years ago. Would be a good idea to cash out the stock and roll it into an IRA?

Dylan

Dear Dylan,

Technically, you wouldn’t be rolling it into an IRA. You would cash it out and use the money to establish a Roth IRA. And yes, I would do that.

It was very kind of your grandparents to buy you a gift like this, but I think you can do better. You didn’t mention an amount, but let’s say you’ve got $10,000 in that company’s stock. Now, would you buy the stock if you had $10,000 sitting on the table? Most people, myself included, would say no because there’s too much risk. I wouldn’t advise having the majority of your wealth — the highest percentage of your net worth — tied up in one single company. That’s bad news.

So yes, I would sell that stock and use the money to fund a Roth IRA or multiple Roth IRAs. I invest my Roth IRA money in mutual funds that have a solid track record of outperforming the S&P 500 for 10 years or longer.

—Dave