DIVERSIFY HOLDINGS, RETIRED EXECUTIVES URGE

ELLIOT ZWIEBACH

Supermarket executives near retirement age -- or younger executives who like to plan ahead -- may be able to reap greater long-term financial rewards if they diversify their holdings rather than tying up their net worth primarily in company stock. At least that's been the experience of a handful of retired managers interviewed by SN, who rolled their supermarket holdings into other investments and said they are glad they did. William Morgan, who retired two years ago at age 58 as vice president of retail accounting at Safeway, Oakland, Calif., said his investment portfolio originally included a lot of stock in Safeway and other grocery companies. "But you wouldn't want to keep the bulk of your portfolio in any one industry, regardless of what industry you're talking about, because things could change," Morgan told SN. He said he felt that diversifying his investments was important "so I could achieve certain goals besides having enough income to live on, including money for my children and grandchildren." Given his accounting background, Morgan began diversifying his investments several years before he retired, shifting some of his holdings into utilities and mutual funds. "When you're working and getting a paycheck every week, it's different than when you contemplate retirement. It becomes a more acute situation, and you want to be sure you're right." So he consulted a broker "to serve as a check and balance for my decisions, and we put together an approach that consisted of self-managed investments and third-party-managed investments that tried to strike a balance between various types of securities that would provide greater protection for my investments if the economy were to change." Steve Schindele, 34, a former produce supervisor at Albertson's southern California division, said he opted to diversify his investments when he left the Boise, Idaho-based company after 13.5 years. "When you're young, you don't think of all the things you can do with your money," Schindele told SN. "But there are different ways to create a greater return that a person might not always think about." At Albertson's, the retirement package consists mostly of company stock, he said. "But working with a broker, I was able to spread the value of the money out over three or four different areas, including mutual funds, zero coupon bonds and other stocks, instead of putting everything into one basket."

Schindele said he also took his 401(k) retirement package from Albertson's and put it into an individual retirement account that he manages. According to Marc Rogers, managing director of The Grocer Team at the Menlo Park, Calif., office of Piper Jaffray, Minneapolis, "If a company were managing an account for an individual, that individual would have a choice of only four mutual funds to invest in. But by managing it himself, the person can custom-tailor his investments using any financial instruments that exist."

Schindele, who owns his own produce brokerage -- House of Quality, Laguna Hills, Calif. -- said he is currently investing his money in deferred income accounts available to self-employed individuals. Egon Bertelsen, who retired in 1991 at 62 as meat sales manager for the southern California division of Albertson's, said he felt it was important to diversify his investments beyond a heavy reliance on supermarket stocks "because you hate to have all your eggs in one basket. And although I still have a lot of supermarket stocks, I thought it would be wise to have some diversification in there, too." According to Rogers, "Most supermarket stocks don't pay very high dividends, and you can't survive on that income alone. So executives can get into more income-based investments, including bonds and preferred stock, that take the place of a paycheck." Marshall Gunn, managing director of the Jacksonville, Fla., office of American Express Tax & Business Services, Minneapolis, also works with executives on diversifying their portfolios. "We've seen many companies that experience major downturns, and if you're retired and all your money is in that company, you're down the tubes," Gunn told SN. "So we encourage people to get their wealth out and diversify their investments." Paul Tyborowski, president of Columbus Circle Trust Co., Stamford, Conn., said executives should begin to consider diversifying their investments between three and five years before retirement. "Company stock is fine as a single security," Tyborowski said. "But it places the retirement plan participant at risk if the market turns. As an executive approaches retirement, he may have one set of expectations, but if the market turns, those expectations can be shattered." Diversification offers a way to lock in the value of a stock by moving some of the equity into short-term treasury notes or money market funds, Tyborowski said.

According to Rogers, retail executives often concentrate too many assets in their own company's stock, "which opens them up to being blindsided if the stock develops problems. "We find that grocery executives are usually so immersed in their work that they neglect many basic planning steps that cause them to lose large parts of their net worth to taxes. "Because so much of their net worth is tied up in their company stock, they tend to get advice from their bosses or co-workers rather than seek professional guidance. This results in getting lots of easy answers but few right ones. "Many times, we get these people as they are in the home stretch to retirement, and yet they are unprepared." Stock options often account for 90% of grocery executives' holdings and 100% of their 401(k) retirement plans, Rogers noted. "So everything is riding on one horse -- and if the horse breaks a leg, there's a problem."