Managing Concentrated Stock Positions for P&G Employees
/As a dedicated Procter & Gamble (P&G) employee, you may have accumulated a substantial position in P&G stock through years of service and participation in the Profit Sharing Trust & Employee Stock Ownership Plan (PST Plan). While this concentrated holding can be a testament to your commitment and the company’s success, it also introduces unique risks that require careful management—especially as you approach retirement.
Understanding Your P&G Stock Position
It’s common for P&G employees to have a high allocation to P&G stock. This is largely because company-funded PST contributions are made exclusively in the form of P&G stock each year. Additionally, diversification within the PST is restricted: you cannot begin to diversify your holdings until reaching age 50, and even then, you are required to maintain at least a 40% allocation to P&G stock in your PST account. These restrictions do not apply to the Savings Plan, where you have more flexibility to diversify your investments at any time.
The Risks of Concentration
While P&G’s track record is strong, holding a large portion of your wealth in a single stock exposes you to several risks:
Volatility: Your portfolio experiences significant swings tied to P&G’s performance.
Company-Specific Risk: Events unique to P&G could disproportionately affect your financial well-being.
Sector Risk: The consumer goods sector’s performance can heavily influence your portfolio.
Opportunity Cost: Concentration may limit your exposure to growth in other sectors or asset classes.
Emotional Bias: Deep company loyalty can sometimes cloud objective financial decisions.
The Retirement Perspective
As you near retirement, managing a concentrated stock position becomes even more critical:
Shortened Recovery Time: There’s less time to recover from potential market downturns.
Sequence of Returns Risk: If P&G stock underperforms early in retirement, it could accelerate portfolio depletion.
Net Unrealized Appreciation (NUA) Opportunities: Properly timing the distribution of P&G stock from your retirement plan can unlock significant tax savings through the NUA strategy, which allows for preferential tax treatment on the appreciation of employer stock.
Strategies for Risk Management
To balance your loyalty to P&G with prudent financial planning, consider these strategies:
Gradual Diversification: Systematically diversify your holdings as plan rules permit, reducing your exposure over time.
Holistic Portfolio View: Assess your PST and Savings Plan holdings in the context of your entire investment portfolio, including outside assets.
Tax-Efficient Strategies: Explore options such as donating appreciated shares to charity for potential tax benefits, or leveraging NUA and other distribution strategies.
Option Strategies: In certain cases, sophisticated option strategies can help hedge concentrated risk (requires specialized expertise).
Every client’s situation is unique, and the right mix of strategies will depend on your goals, risk tolerance, and emotional comfort with diversification.
A Real-Life Example: Balancing Strategy and Sentiment
Consider a recent P&G retiree who began working with us at Vaultis Private Wealth in late 2024. After a long and successful career, he found that nearly 70% of his retirement assets—across both his PST and Savings Plan—were allocated to P&G stock. This level of concentration is not uncommon among long-tenured employees, and it often comes with a strong emotional attachment to the company’s shares.
We developed a plan to gradually diversify his holdings while honoring his connection to P&G. After completing his full distribution, which included leveraging Net Unrealized Appreciation (NUA) and a Duke Rollback, we took a two-pronged approach. First, we targeted his NUA shares in his taxable account, planning to use them strategically over time as part of his Lifestyle Funding Strategy. Second, to begin the diversification process, we sold an initial 15% of his P&G shares in his IRA at an attractive price. From there, we set up a disciplined schedule to sell a set number of shares each month, with the goal of reducing his P&G exposure to approximately 15% by the end of 2025. This evolving process allows us to introduce flexibility and adjust the plan should P&G’s price appreciate or depreciate more than expected.
It’s important to recognize that every individual’s emotional connection to P&G stock is different. Some employees feel a deep sense of loyalty and pride, while others are more comfortable viewing their holdings objectively. Either perspective is valid, and both should be respected in the planning process. Even for those with a strong attachment to the stock, it remains essential to reduce concentration risk to an appropriate level to protect long-term financial security. Our flexible approach ensures that your financial plan honors your unique relationship with P&G while prioritizing your future stability.
Partnering for Your Financial Future
Managing a concentrated stock position within the framework of P&G’s benefits requires specialized knowledge and a personalized approach. At Vaultis Private Wealth, we specialize in guiding P&G employees through these complexities, balancing the rewards of company loyalty with the need for prudent risk management.
Disclosures:
Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. There is no guarantee that any investment strategy will achieve its objectives. The information provided is not intended to be tax advice. Please consult a tax professional for specific tax advice. This article is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment products. Always seek the advice of a qualified financial advisor with any questions you may have regarding your financial situation.