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It's understandable if some investors are confused about how much company stock they should hold in their 401(k) plans and portfolios -- ask the experts and you're likely to get lots of different answers.

Some financial planners say investors shouldn't have any of their net worth tied to the company that pays the bills. Look at employees who had their retirements dependent on WorldCom and Enron shares. Others say it depends on the company and point to anecdotes of Microsoft millionaires. Then there are investment advisers that come down in the middle depending on the individual situation.

Many planners say if company stock represents more 5 percent to 10 percent of your portfolio, it's time to diversify. But according to the Investment Company Institute, few portfolios adhere to that rule of thumb. The ICI found 401(k) plan portfolios had an average of 17 percent of their holdings devoted to company stock in 2001, the latest year available. That percentage holds steady for investors in their 30s, 40s and 50s. Retirement plan participants do diversify a bit in their 60s, but still put 14 percent of portfolio in company stock.

Why are so many people betting on their company stock following debacles like Enron and WorldCom? "Everyone knows people that had one stock and hit it big," says Walter Schubert, chair of the finance dept. at La Salle University in Philadelphia. "But you need to manage that risk because anything can happen. If we knew what was going to happen we'd all just invest in one stock."

Schubert argues that employees need to diversify because they are already depending on the company for their earnings. If you also hold stock, your risk is doubled if the company unravels and takes your job as your company shares tumble.

According to Schubert, investors in general shouldn't have more than 5 percent of their assets tied up with company stock. Others double that figure. And a few stray planners saying they'd be comfortable with higher percentages if it's a blue-chip company. In the end, there really isn't a consensus, hard-and-fast rule on limiting company stock holdings.

Much depends on how you acquire the company stock. Options are different because it's essentially compensation. Employee purchase plans with discounts for buying stock also change the formula and may be viewed more favorably. But most planners say employees shouldn't allow company stock to become the majority of their retirement plans.

So what's right for you? Here's a look at the different views.

Zero to 5

How much should employees have in company stock? "Almost nothing," says Lou Stanasolovich, CEO Legend Financial Advisors in Pittsburgh.

Stanasolovich says 2.5 percent is about the limit for company stock in a portfolio. He does acknowledge there can be a few exceptions, such as employee stock plans where workers can buy shares at a 15 percent discount. "If a company gives a discount on its stock, that's valuable," he says. "But you should sell them and diversify as soon as you are eligible."

Without a discount, employees should steer clear of company stock. Planners in the 0 percent to 5 percent camp also shoot down the argument that employees know their companies better and therefore know when to hold and fold.

"There's this idea that you know your company better than anyone else," says Robert Dammon, a professor at Carnegie Mellon. "But employees thought Enron was a good company right before they were handed pink slips."

Mary-Jo Iacovino, a financial consultant with AXA Advisors, turned down one client that had 58 percent of her net worth tied up in company stock. Once the client ditched the stock, it fell from $48 to $25. "Bottom line, that would've been a big hit," says Iacovino.

Iacovino says no more than 5 percent should be tied to company stock in an ideal portfolio. "You have to ask what will happen if the stock goes down 60 percent," says Iacovino. "Are you going to be able to put your kids through school."

Five to 10

Iacovino does say there are some situations where an investor could reasonably have 10 percent in company stock, such as 401(k)s through which employees get matching contributions in company stock. However, she says that employees should diversify from matching shares when they get the chance.

Stock options may also skew the formula, leading to more than 10 percent in company stock. Again, Iacovino advocates diversifying, in this case by selling stock options with a cashless exercise and then investing in other issues that pay dividends.

Jim Blankenship, principal of Blankenship Financial Planning, says employees can hold up to 8 percent to 10 percent in company stocks because often they do know more than outsiders. That range, however, is an exception -- Blankenship advocates investors generally should have no more than 5 percent in a single stock.

Above 10 percent

Despite the talk about 10 percent threshold, many planners say there are exceptions. For instance, In Iacovino's view, a high net-worth individual -- someone that has $3 million to $4 million to cover expenses such as education, long-term health care and estate planning -- can have more than 10 percent because other living expenses are covered.

"What troubles me is there are so many people saying company stock is a bad idea," says J. David Lewis, president of Resource Advisory Services in Knoxville, Tenn.

Lewis says every case is different depending on the fundamentals of the company stock and investor's appetite for risk. One couple he works with has 45 percent of their net worth tied up in stock options. Although the initial idea was to exercise and dump them, another review determined that it was a good company, thus justifying a higher allocation.

"It all depends on if you believe in the company and correctly believe in it," says Lewis. "You have to be dispassionate."

Ultimately, there has to be a plan to diversify into real estate or other stocks and bonds, Lewis says. One of his clients diversified bought a summer home, which brought company stock down to 20 percent of the portfolio, from 60 percent previously.

Angela Thompson, a planner at Coastal Financial Planning, says 20 percent is her maximum for company stock. She actually feels more comfortable below that threshold, but because of employees' emotional bonds to their companies, it takes some work to convince them to diversify, she said.

"You have to have an exit strategy," says Thompson. "It takes awhile for older clients to understand they won't be disloyal if they cash out. There are still a lot of people out there that think it won't happen to them, (but) anything can happen to any company at any time."