Money Matters:BP & Your 401(k)
June 14, 2010, 9:50 PM
SIOUX FALLS, SD -
Under pressure from the White House, it appears BP is willing to set up a massive compensation fund for victims of the oil spill. BP has already paid out $1.6 billion in response to the spill and has seen its stock value plummet by $90 billion.
BP stocks fell again Monday, dropping nine percent on news that the company's board was meeting to decide whether to suspend millions of dollars in dividends to investors. And while you may not think one stock could affect your 401(k), it turns out in the case of BP it can.
Even though BP makes billions in profits, the oil spill in the gulf is making investors nervous. And the drop in the company's stock price could have a greater impact on your 401(k) than you may think.
"But in effect what happens is that in a 401(k) plan you may have a diversified portfolio with 4 to 5 different positions. But what happens is BP, British Petroleum, may be represented in each one of the mutual fund positions," Financial Planner Neil Graff said.
And now BP is under pressure not to pay out its dividend to investors which was more than $10 billion last year.
"If the dividends are not paid out the overall performance of BP impacted to a greater degree. Dividends not paid out there will be a decrease in BP price. The downside to no dividends to offset the decline in BP stock price could have a major impact on people's performance," Graff said.
But the company's main risk right now is the liability it faces in the environmental disaster.
"I think the jury is still out on BP. It's paid almost $2 billion in reparations to offset the environmental disaster. We don't know yet the long term implication, what dollar amount might be lurking out there in liability for BP and it could have a major impact on the long-term viability of BP," Graff said.
The Dow finished 20 points lower today, but not because of BP. Moody's lowered its rating on Greece's debt to "junk" status, prompting investors to take money out of the market.
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