401(k), 403(b), 457(b) etc have become a very widely used saving and investment vehicles for most of Americans with its tax-qualified and company matching features. In these plans, there are wide selection of mutual funds, ETFs, and company stocks for us to choose.
I would suggest to people to choose index mutual funds since the risk is lower than the sector specific mutual funds and a lot lower then the individual stock. If you want to own some of your company's stock, the rule of thumb is not to exceed the 4% of your total investment in your 401(k).
There are a lot of downside of owning a large chunk of your own company's stock in your 401(k). It is one direction investment which is all depened on how your company is doing. If your company is doing well, your employment is more secure, your compensation is going up, you get more bonus and your company stock is up. The opposite of this is that everything is going south. To managing your risk, you should never own more than 4% of your company stock!
There was a story about a 60 plus year old custodian who worked for Enron Co. for many years. Enron at one point was the 7th largest company in US during the 90's. This gentleman had a 401(k) worth north of $2M which was all in Enron stock, of which he was not allowed to sell them. Enron went bankrupt in October 2001 which also caused the dissolution of Arthur Andersen, one of five largest accounting firms. The Enron bankruptcy wiped out this genleman's portfolio. For a 60-year-old person, it is very, very hard for him to recover from that kind of loss.
Since then, most companies' 401(k) plans allow the selling of the company stocks which were prohibited during the 90's in most of companies' 401(k).