Questions & answers about the company stock fund - Vanguard

Questions & answers about the company stock fund

Unit accounting

Your plan's company stock fund isn't like other investment options.

It focuses on a single company's stock, which offers both benefits and risks. Most of all, the company stock fund raises some important questions. You'll find answers ahead.

How does a company stock fund work?

A company stock fund is a pooled investment offered in some employer-sponsored retirement plans, like yours. It invests primarily in a single company's stock, usually (but not always) the company that sponsors the plan. It also invests in a small amount of cash. This money is used to simplify transaction processing and reduce trading costs.

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How is the company stock fund different from a regular stock mutual fund?

Most stock mutual funds invest in hundreds or even thousands of stocks. So, unlike the company stock fund, the performance of any single stock has relatively little effect on a stock mutual fund's total returns.

How can the company stock fund help me?

A company stock fund allows you to share in a company's financial success. When the company does well, your investment in the fund does well. There are no other stocks in the fund that might drag down its performance.

What are the risks?

The risks, like the possible benefits, arise from the fact that the company stock fund focuses on a single company's stock. A company stock fund is much riskier than a diversified stock mutual fund. Because it invests in only one stock, its performance can swing up and down dramatically. There are no other stocks in the fund that might generate gains to offset losses in the company's stock. All investing is subject to risk, including the possible loss of the money you invest.

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How much should I invest in the company stock fund?

The company stock fund can be part of a diversified asset mix. Consider limiting the amount you invest in company stock to a level consistent with your tolerance for risk. Your plan rules may limit the amount you can invest in company stock. Please review your Summary Plan Description. For help evaluating your risk tolerance, you can complete Vanguard's Investor Questionnaire at investor. Answer 11 questions and you'll receive a suggested asset mix based on your circumstances. You can use the company stock fund as part of the stock allocation suggested by the questionnaire. Remember that diversification does not ensure a profit or protect against a loss.

What is a fund unit?

For recordkeeping purposes, the company stock fund in your plan is divided into fund units rather than shares of stock. A stock share represents an individual portion of ownership in a company. A fund unit represents a portion of ownership of the fund. Each fund unit consists of shares of company stock and a small cash balance.

Why doesn't the company stock fund only invest in shares of company stock?

The company stock fund is run like a mutual fund, which provides two advantages: ? Quicker processing. The cash balance generally allows Vanguard to

process your transactions daily, avoiding the wait time usually required to settle stock trades. ? Lower costs. Your transactions in the company stock fund are pooled with transactions from other investors. This process, combined with the cash balance, means Vanguard doesn't have to buy and sell as many shares on the open market, which reduces the fund's costs.

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Why is the fund unit price different from the company stock's share price?

Because each fund unit represents ownership of company stock and a small cash balance, fund unit prices do not equal company stock share prices. You can estimate the number of stock shares you own by dividing your balance in the company stock fund by the share price of the stock. For example, if you have a balance of $1,000 in the company stock fund and the current share price of the company's stock is $25, you own about 40 shares of stock.

Does the cash balance earn interest?

Yes, but because the cash balance is relatively small, this has little effect on the company stock fund's return.

Do I receive dividends from the company stock fund?

Every time the company stock pays a dividend, the company stock fund earns that dividend. You will receive the dividend if you are invested in the company stock fund on the record date set by the fund. Because one unit of the fund does not equal one share of the stock, the dividend per fund unit will differ from the dividend per stock share announced by the company.

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