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Silicon Valley bank 401K plan loses 18%  of its value during collapse.

Silicon Valley bank 401K plan loses 18% of its value during collapse.

July 18, 2023

Silicon Valley bank 401K plan loses 18% of its value during collapse.


At Sterling Edge Financial we wanted to share an eye-opening story with you, recently covered in The Wall Street Journal, regarding the unfortunate collapse of Silicon Valley Bank and First Republic Bank. 

You may recall these once-prominent banks, which have now vanished from the financial landscape. However, what you might not know is that they offered their employees the opportunity to purchase stock through their 401(k) plans and employee stock purchase programs. Shockingly, when these banks failed, over 18% of Silicon Valley Bank's 401(k) holdings were concentrated in Silicon Valley bank stock alone.

While not all participants at Silicon Valley Bank had such a high allocation to their employer's stock, this alarming figure serves as a stark reminder of the inherent risks associated with investing in individual securities or your employer's securities.

It's not uncommon for us to be emotionally attached to the companies we work for and the colleagues we admire. The allure of purchasing discounted employer stock, feeling like an insider, and receiving generous stock options or awards can cloud our judgment and impair critical thinking. However, it is important to recognize that stock ownership aligns employees and executives with shareholders, primarily benefiting the shareholders themselves.

From a personal financial planning standpoint, it is crucial to take a step back and evaluate the pros and cons of having concentrated positions in one stock, one sector, or even your employer. I can only imagine the psychological impact on someone who had devoted years of their career to Silicon Valley Bank, only to witness 18% of their 401(k) holdings vanish into thin air as the stock became worthless.


Avoid Financial Catastrophe: The Risky Business of Concentrated Investing


To put this into perspective, a diversified portfolio may experience an 18% decline, yet it still retains residual value and the potential for future returns. However, in the case of Silicon Valley Bank, the loss is permanent—there is zero terminal value, no chance of recovery, and the money is irretrievably gone.

They say history doesn't often repeat itself, but it does rhyme. Surprisingly, over 40% of companies that have ever been publicly listed no longer exist. Looking back over the past two decades, we can find similar cautionary tales. A quick Google search will reveal the financial damage suffered by employees who made the same mistake of overallocating their 401(k) holdings to companies like WorldCom, Global Crossing, Qwest Communications, Washington Mutual, and many others. 

Even some of the most successful companies of the last 30 years have experienced long periods of stagnant stock performance or below-average returns. Take Microsoft, for example. Before the Dotcom boom in the late 1990s, its valuation soared to unimaginable heights.

However, the bubble burst in March of 2000 sent the stock plummeting. It took another 13 years for Microsoft's stock to reach a new peak valuation. This highlights the uncertainty of equity returns and the difficulty in predicting the future over a decade or more, especially during market euphoria or downturns.

My key point here is that whenever you concentrate your investments—whether through stock options, discounted stock purchases, or overweighting a specific stock or sector—you magnify the worst-case scenario for your investment portfolio. While concentrated positions may offer the greatest opportunity for substantial gains, if they don't turn out well, the results can be utterly catastrophic.

This is why financial planners and professional investment advisors consistently advocate for diversification. By establishing a comprehensive investment policy statement with a globally diversified collection of stocks and bonds, you have the opportunity to generate ongoing potential returns, surpassing inflation, while minimizing exposure to catastrophic losses associated with owning a single stock.


A few questions to consider this summer.

Do you currently have employer stock in your 401(k)?  How much? 

Are you participating in a stock purchase plan offered by your employer?  What is the long term goal of these shares? 

Does your employer contribute to your 401(k) match with company stock instead of cash? 

These questions are crucial because most investors have no rules based strategy to manage their investments across multiple platforms.  There is no official, “check my 401(k) day” or sell my company shares schedule. If you have investments left behind at old employers or you haven’t reviewed them in a while; it's time bring them in out of the cold. It is time to make them part of the plan. It is important to get those investments in line with your financial plan, investment policy statement and portfolio allocation.

Want to review an old investment account? Want to understand your options? Book a meeting with us today. 

If you haven't recently reviewed your employer-provided retirement plan, old retirement plans, stock options, or employer stock, now is the perfect time to reach out to us and schedule a review. Your future self will thank you for making this a priority. It's essential to remember that employer-provided retirement plans, including 401(k), 403(b), 457, TSP, 401(a), and others, come with a fiduciary responsibility to the plan. However, this fiduciary responsibility is not personalized to serve you individually. In fact, plan administrators and service providers have little or no obligation to provide meaningful ongoing advice, recommendations, or education beyond standard correspondence. This means that if you choose or default into cash investments, target date funds, company stock, or single investment funds that don't align with your financial planning or investment objectives, you may have limited recourse.

So if they reach out to you regularly, consider taking their call.  If you have an advisor, be sure to ask for their help selecting your retirement plan allocation. We genuinely hope that you and your loved ones never experience a catastrophic loss in your employer-provided retirement plans. The cautionary tale of the participants at Silicon Valley Bank and First Republic Bank serves as a stark reminder of the risks associated with concentrated investment strategies influenced by familiarity bias. Should you require additional guidance on your investments or have any concerns or questions about stock options, restricted stock units, private pension offerings, or deferred compensation, please consider us your trusted resource. We are here to help you understand how these elements can influence and impact both your short-term and long-term financial planning objectives.


Your financial future deserves the utmost care and attention. Let's work together to secure it. 

Wishing you continued success