XOM’s Up - 4 Recommendations on How Much XOM to Hold in Your EMSP

If the EMSP is a significant source of retirement assets, you should be more diversified (i.e., hold less XOM stock) than if you view your EMSP as a supplement to your basic nest egg and you want to speculate on ExxonMobil stock.

If you are likely to depend on these assets and are within a few years of having to access the funds for living expenses, think about how a decline in value by as much as half might impact your plans.

One approach is to hold only enough XOM such that you’d still be in reasonably good shape if you lost as much as half the value of the XOM holdings. That could mean holding only 10% to 15% of your account balance in XOM, considering that you will also likely have an ExxonMobil Pension Plan benefit.

Forget, for the moment, that you’re an owner of an existing EMSP account. Imagine, instead, that you received a check for the current value of your EMSP and were told to invest it.

Starting with a clean slate, owning nothing but limited to the investment options available in the EMSP, how much would you invest in ExxonMobil stock? If your answer to that question is “Not as much as I have now,” you should consider reducing your exposure.

Bad things can happen to the stocks of good companies. Investor interest in a particular company can be influenced by political considerations, geopolitical events, macroeconomic conditions, negative press, management turnover, imprudent capital investments, and legal and tax changes, among many other factors.

Given the investment options in the EMSP, consider what’s likely to perform the best over your investment horizon. Those of us who don’t have a good crystal ball on future returns rely on diversification.

Most of us intellectually understand that investing should be logical, analytical, and emotionless. Putting that into practice for ourselves is rarely easy. Our ego gets way too involved with our investment decisions. Our emotions drive us to greed on the upside and fear on the way down.

When investing, we try to be coolly analytical, but it’s worth asking yourself: “How would I feel if my XOM shares fell by 20%, 30%, or 40%?” Imagining that kind of loss (which history suggests is possible) is a gut check on whether you’re too heavily concentrated in ExxonMobil.

Suppose you have years to go before needing the money and a psychological tolerance for risk that will allow you to keep calm and carry on despite a brutal correction in the price of XOM. In that case, you can tolerate a higher percentage of your portfolio in XOM.

If you were stressed out in the fall of 2020 when ExxonMobil tanked, learn from that experience, and consider reducing your single-stock exposure.

• All the non-XOM investment options in the EMSP serve a single purpose—to grow your account and get liquidated upon taking your final distribution.

On the other hand, you can take ExxonMobil stock out of your EMSP account in kind as shares. You can move those shares into an IRA if you want to hold them long term as an investment.

More frequently, shares of XOM, along with their cost basis, are transferred into a taxable investment account, taking advantage of net unrealized appreciation (NUA). This tax strategy may benefit you. (For an explanation of NUA and a discussion of when it might be appropriate, check out an earlier blog post here.)

If you are charitably minded, shares of XOM, especially with a low cost basis, make an ideal asset to set up a Donor-Advised Fund (DAF) or a Charitable Remainder Unit Trust (CRUT) or to use outright for charitable giving.

Some EMSP participants may also want to hold on to shares of XOM as a legacy for their heirs, reflecting a source of family wealth and the company to which the breadwinner devoted much of their career.

If you intend to follow any of these strategies, you may want to retain your concentrated position in ExxonMobil stock. Be mindful, however, that a decline in the stock’s value could impact the effectiveness of the strategy.