Holding too much of the boss's stock can be hazardous to your wealth. By Jeffrey R. Kosnett, Senior Editor December 31, 2007 Scott Spilker, a major in international business in his last year of college, works 30 hours a week as a shift manager at a Starbucks in suburban Kansas City. Because he often works past 11 p.m., it's fitting that his preferred beverage is Starbucks coffee -- black. "Sounds kind of lame," he confesses with a laugh. "But it's what I like."Scott, 21, also has a taste for Starbucks stock. He lives rent-free, with his parents, in Leawood, Kan., so he can afford to participate in the company's savings plans. Late in 2007, he decided to use 10% of his gross monthly pay of $1,400 to buy Starbucks shares, which employees may purchase at a 15% discount to a price that the company sets periodically. Scott is also deferring 4% of his pay to several Vanguard funds in the company's 401(k) plan. For now, Starbucks offers a matching contribution equal to 1% of his salary; that money, too, goes into the funds. The end result is that Scott invests $2 in Starbucks shares for every $1 he channels into his diversified 401(k). "I'm getting an immediate 15% return," reasons Scott, who has paid an average of $22 for each of his 20 shares. Thank goodness for the employee discount. The stock (symbol SBUX) traded at $23 in mid November, off from $40 a year earlier. Rising dairy and energy costs and sluggish sales growth in the U.S. have pressured the shares. What's right? Scott, who intends to work full-time for Starbucks after he graduates, figures that about 10% of his holdings are now in the coffee chain. If he sticks with his current program, it won't be long before his allocation to Starbucks hits 20%, unless the shares sink or his funds go wild. Advertisement Which raises the question of how much stock is too much in a company that is also your employer. Mary Maginniss, a director of SBSB Financial Consultants, in McLean, Va., says that "15% is the upper boundary," and that even 10% is high. Hugh Smith, director of financial planning for the Welch Group, in Birmingham, Ala., says that 5% is enough and that 10% is pushing things unless you're a senior executive. But there are other issues to consider: Handcuffs. Are there restrictions on when you can sell your stock? Scott can sell his shares anytime. Unfortunately, lockdown periods remain common, despite the outcry after the Enron scandal. If you face such restrictions, don't rely on the shares for meeting important goals until after you can gain control of them. Type of company. If you work for a small, fast-growing firm, don't keep more than 5% of your investments in the company, says Smith. He reasons that if the firm flourishes, you'll amass a bundle anyway. Better to be conservative lest the company flop and you lose your job as well as your investment. Alternatives. Scott's embrace of the 15% discount is logical. But if he puts more money into his 401(k), he'll get immediate tax savings, plus matching money and diversification. Maginniss thinks Scott should reverse his pattern of contributions and put 10% in the 401(k) and 5% in the stock. Advertisement Taxes. If Scott were near retirement, he'd have to weigh other issues. If he had adequate income, he could donate shares or leave some to heirs so that they could benefit from the stepped-up tax basis. But if money were tight, it would be appropriate (assuming capital-gains tax rates remain low) to sell some shares and invest the proceeds in income-producing investments. Stumped by your investments? Write to us at firstname.lastname@example.org.