Final answer:
An ESOP participant can require diversification of their holdings by the specific rules of the ESOP, which are designed to balance the risks associated with investing heavily in a single company.
Step-by-step explanation:
An ESOP participant may require their employer to diversify their holdings under some conditions relevant to the structure of employee-owned businesses. Diversification is a protective measure against the risk that comes with investing in a single company. Financial experts recommend diversifying investments, aligning with the wisdom of not putting all your eggs in one basket. When you hold stocks or bonds from a broad range of companies, the risks of individual company setbacks can be mitigated, as these are often offset by gains in others within a diversified portfolio.
Purchasing stocks can be done through stock exchanges, brokerages, or by participating in an employer's employee stock ownership plan (ESOP). The purpose of diversifying a portfolio is to reduce risk and improve the chances of investment success. An ESOP participant needs to know their rights about when they can request diversification, which is typically governed by the plan's rules, applicable laws, and vesting schedules.