Do You Own Too Much of Any One Stock? Schwab Center for Investment Research Analyzes Historic Data to Determine the Risk of Having Too Many Investment Eggs in One Basket.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Feb. 11, 2002

In the wake of the collapse of Enron Corp., investors across the country are reassessing their retirement plans to determine whether they own too much of their companies' stock. But as they reallocate portfolios and shift money into different asset classes, a question remains: How much of a single stock can investors own in an otherwise well diversified portfolio before their overall return is significantly impacted?

To answer that question, the Schwab Center for Investment Research reviewed data from 1926 to 1998. Researchers examined 25,000 simulations of a portfolio consisting of various percentage allocations of a single, randomly selected stock in an otherwise diversified portfolio. Their conclusion: The risk associated with a concentrated stock holding begins to dramatically impact a portfolio when it makes up between 20 and 30 percent of an investor's overall investments.

"Our research shows that once you reach the 20 to 30 percent threshold, a concentrated stock holding dramatically increases the overall risk to your portfolio," said Bryan Olson, vice president of the Schwab Center for Investment Research. "Concentrated stock positions can turn retirement investing into an unpredictable roller coaster ride. A more sound approach to successful long-term investing is to build a foundation of holdings that are well-diversified both within and across asset classes."

Among the risks of a concentrated equity position:

-- Volatility: The returns on a portfolio with a concentrated equity position
will typically be more volatile than the returns of a diversified portfolio.

-- Portfolio under-performance: A portfolio's risk of substantially
under-performing the stock market increases significantly with a concentrated
position.

-- Missed goals: Underlying goals such as sending a child to college, starting
a business, or retiring early may not be achieved.

While these risks apply to any concentrated position, employees who over-invest in company stock significantly increase their exposure to a potentially compounded risk. "When an employee's basic income, retirement plan investment, and, for some, incentive-based compensation such as stock options, are all tied to the fortunes of a single company, there could be an escalating risk of job and investment loss. That's something investors should avoid," said Olson. "Asset allocation is a smart, time-tested strategy for helping investors meet investment goals and avoid the risks associated with concentration."

To help investors assess how their retirement assets are invested, Schwab is offering a complimentary 401(k) Checkup, an objective assessment of holdings in 401(k) or other employer-sponsored retirement plans. Investors complete a brief questionnaire, which is reviewed by a Schwab Investment Consultant to create a report detailing asset allocations and suggesting ways to adjust the retirement portfolio by asset classes. For more information on the 401(k) Checkup, call 877-561-5445.

Schwab also offers a wide range of retirement plan services, including defined contribution plan investing, recordkeeping, trustee services (through The Charles Schwab Trust Company) and makes available self-directed brokerage accounts (through Charles Schwab & Co., Inc.). Schwab Retirement Plan Services, Inc. and The Charles Schwab Trust Company are affiliates of Charles Schwab & Co., Inc. As of December 31, 2001, total Schwab Corporate Retirement Plan assets equaled $97 billion.

The Schwab Center for Investment Research was created in response to the growing need for Schwab to offer advice to its clients and, at the same time, to ensure that its advice is supported by objective research. A small but high caliber team, including two Ph.D.s and five Chartered Financial Analysts(R), the center specializes in quantitative analysis of investment principles. Its findings go into the Schwab Mutual Fund Select List, relevant and actionable retail-oriented research reports, as well as in other advice-oriented products, services and tools.

About Charles Schwab

The Charles Schwab Corporation (NYSE:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. (member SIPC/NASD) and its other operating subsidiaries, is one of the nation's largest financial services firms serving 7.8 million active accounts with $846 billion in client assets through 429 domestic offices, 5 regional client telephone service centers and automated telephonic and online channels. About 28% of Schwab's client assets and about 10% of its client accounts are managed by approximately 6,000 third-party, fee-based investment advisors served through Schwab Institutional. The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively. (0002-7540)

Past performance is no guarantee of future results. This information is for educational purposes only. In considering diversifying (selling) a concentrated position, please contact a financial or tax advisor to understand how such a transaction may affect your financial situation. Schwab does not guarantee the suitability of any particular investment strategy.

FACT SHEET TO FOLLOW

Charles Schwab & Co., Inc.

FACT SHEET

Managing Your 401(k): Four things every retirement investor should know.

1. Contribute the maximum you can.

-- Make the most of a company retirement plan: Investing in a

company 401(k) or other retirement program is a powerful

savings tools. 401(k) deductions are pre-tax and, money can

grow tax-deferred. Investors should contribute the maximum

amount for the greatest benefit, or at the very least, set

aside the percentage the employer matches. Matching dollars

are also pre-tax, which can greatly increase growth potential

over time.

-- Take advantage of new tax savings in 2002: In 2002, investors

will be able to contribute $11,000 pre-tax to a 401(k), up

from $10,500 in 2001. That amount rises $1,000 each year until

it reaches $15,000 in 2006. Additional catch-up contributions

increasing from $5,000 to $10,000 are available for investors

age 50 and over.

-- Maximize opportunities with previous employers' plans: If a

401(k) is still with a former employer, investors may want to

consider rolling over a 401(k) into an IRA for greater

investment choice and control, and to help protect the

retirement assets that have accumulated.

2. Be aware of risk.

All investments contain some degree of risk, but there are ways to minimize it. The main types of risk that can affect a portfolio are:

-- Inflation risk: Also known as purchasing power risk, inflation

risk is the possibility that the value of investments will not

keep pace with continually rising prices of standard goods and

services.

-- Market risk: Also known as principal risk, market risk is the

chance that investment value may decline and even cause a loss

to a principal investment.

-- Interest rate risk: Interest rate risk is the risk that the

value of a fixed-rate investment will change as market

interest rates change. For example, the value of a Treasury

bill or bond may decline if interest rates rise. Conversely,

its value could increase if rates fall.

When choosing investments, investors should structure portfolios to minimize risk. The following may lead to increased portfolio risk:

-- Equity concentration: If just a few stocks comprise a

significant portion of holdings, the portfolio may be at risk

for increased volatility. Often, investors may not be aware

that equity mutual funds also contribute to this risk. For

example, if an investor owns shares of an individual large-cap

stock and owns a large-cap mutual fund that invests in the

same stock, the overall portfolio becomes more susceptible to

the movements of that stock's price. Schwab advises

diversifying retirement plans so that any individual stock

holding -- individually, or across mutual funds -- represents

no more than 20 to 30 percent of a portfolio.

-- Sector concentration: When stocks in a particular industry or

related groups of industries constitute a large part of

retirement plan holdings, the portfolio might face greater

volatility. For example, if a portfolio consists of many

shares of stocks and mutual funds representing the health care

industry, it will be more vulnerable to price fluctuations

caused by events within the industry. Schwab advises

diversifying a portfolio so that concentration in an

individual sector does not exceed that of the market

(represented by the Wilshire 5000 Index) by more than 20

percentage points.

Two investment strategies that may help minimize your risk are diversification and dollar cost averaging.

-- Diversification: Diversification simply means selecting

investments from different investment categories to reduce

exposure to risk. So rather than risk your money on the

success or failure of a single investment, you combine a

variety of holdings such as individual stocks, bonds, and

mutual funds, which are unlikely to all move in the same

direction.

-- Dollar cost averaging: Dollar cost averaging means investing

an equal amount of money in a group of investments at regular

intervals. When prices are lower, your money buys more shares

of the investment. When prices are higher, your money buys

fewer shares.

3. Save beyond company retirement plans.

Generally, most Americans will need 70 to 80 percent of their current income in order to sustain a comfortable lifestyle during their retirement years. Unfortunately, Social Security will not be enough for most. In addition to company retirement plans, the following retirement savings vehicles may help investors achieve financial independence in retirement:

-- IRAs: Due to recent tax changes, IRA contribution limits are

increasing significantly.(1) In 2002, the maximum IRA

contribution will be $3,000. By 2008, it will be $5,000. Plus,

additional catch-up contributions may be available for

investors age 50 and over. You have a choice of traditional or

Roth IRAs, both of which offer tax-deferred growth. Your

eligibility to participate and deduct contributions may depend

on your income, tax filing status, and company retirement plan

participation.(2)

-- Annuities: Annuities provide the opportunity for additional

tax-deferred savings with no annual contribution limits. And

unlike other retirement savings plans, required withdrawals

need not begin until well after age 70 1/2.(3) Annuities are

best used as a long-term investment tool (at least 7-10

years), and are best suited for investors in higher income

brackets.

-- Small Business Retirement Plans: If you freelance or operate a

part-time business in addition to your regular job, be sure to

take advantage of one of the best tax-saving deals available:

small business retirement plans. These include the Simplified

Employee Pension Plan, or SEP-IRA, which is very much like a

traditional IRA except that the annual contribution limit

starting in 2002 is $30,000; and the "Keogh," or Qualified

Retirement Plan, through which you can contribute up to

$40,000 per participant annually.

4. Plan and re-evaluate a retirement investment strategy.

Whether retirement is in five years or 20 years, investors should periodically re-evaluate retirement portfolio and assess progress toward retirement goals.

-- Stay on track: Schwab advises that investors review their

portfolio at least once a year, and certainly whenever

personal circumstances change. Typically, investors can

evaluate the performance of investments against relevant

risk-adjusted benchmarks, and, when necessary, re-balance

their portfolio to stay on track with your long-term financial

plan.

-- Become a lifelong investor: Investing for growth should not

necessarily stop at retirement. To keep investments working

throughout retirement, investors may want to keep a portion of

their portfolio invested for growth, rather than automatically

shifting all of money into fixed-income and money market

investments too early.

(1) Consult your tax advisor to determine if your situation allows higher contributions.

(2) Distributions made before age 59 1/2 may be subject to early withdrawal penalties.

(3) Withdrawals of earnings are subject to ordinary income tax.

Charles Schwab & Co., Inc. Member: SIPC / New York Stock Exchange and Other Principal Stock and Options Exchanges.