FYI, this is test data, not my money.

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Because you need to diversify and you already have your most valuable financial asset invested with the company — your job. The Street outlines why this guideline makes sense:

People must realize that company loyalty should be demonstrated in ways other than having a large portion of their net wealth invested in their employer's stock. 'If the company goes under, they're already going to lose their source of income; they needn't lose their life savings as well,' says Tim Maurer, director of Financial Planning at the Financial Consulate in Baltimore, Md. 'Diversifying away from too much concentrated publicly traded stock exposure is not disloyal; in most cases it's just smart.' The very best way to prevent crumbling with your company is not to have too much invested in it.

These days it's helpful to remind yourself of this: In the long run the risk of missing stocks' upside poses a graver threat to your wealth than taking hits on the downside does. There's no denying that the big one-day drops we've seen recently are no fun, but if you hang in, the math works in your favor. "Stocks go up and down,' says Stephen Wood, senior portfolio strategist at Russell Investment Group. 'To make money you need to capture their upward movements. The only way to do that is to stay invested in dicey times."

...they go back proportional to the account balance. So whoever has the biggest account balance, gets the most money back. David says:

The net result here is if your CEO with a large balance uses an index fund with no kickbacks for his 401k, and other participants use expensive funds, they are in essence making a contribution to their CEO's 401k because his higher account balance gets the brunt of the revenue share "kickback."

For more about the dirty secrets in 401ks, check out our post, "How Your 401(k) Is Ripping You Off."

(Photo: Getty)

I'm 27, looking to start planning for retirement. My company has an arrangement through The Hartford group for our 401K and I read your article on Fund Level Expenses and how the broker will be earning compound interest on MY compound interest. I also ran across this article while researching:(and it also links to a Mutual Fund Expense Analyzer that might be handy for other Consumerist readers). The article is talking about getting yourself involved in an Index Fund that would have fee's of around .19% or so and going it alone.

Most of the 16 investment options I have through The Hartford have a fee of over 1% (many over 1.25%)...

But to undertake the medium-high risk plan I've devised, I am able to keep my fee's around .91%. I'm about 30-35 years from retirement, and of course I'd like to get the most bang-for-my-buck. But I'm really REALLY green in this area. Now, my company DOES offering matching up to 3% of my wage, and will then match HALF of what I contribute up to 5%...so for every 5% I invest, they'll match 4%.

I don't know how to calculate all this, but I need to know if I'm better off sticking with my matching plan in my company, or if I should go it alone with something that has a much smaller fee? I don't have a lot of up front capital to invest, so maybe that means I wouldn't even HAVE the option of going it alone. But I'm also hoping to move in about 4-5 years from where I live, and I would have to change companies to do so...so I doubt I'd be fully vested by then, but I figure that starting something now is better than nothing.

If you don't feel able to point me in the right direction, I've read a lot of comments about other investors on the site and was hoping you could pose this to them as well so I could get some feedback.

Thank you!

Matching policies vary by plan so you'll have to read the plan documents very carefully to figure out what's up. UPDATE: But you should probably take the match while you work there, then roll it over into a 401k after you leave and invest it in whichever low-fee fund you like. I'm going to go ahead and assume that your employer won't continue to match after you don't work for them. Since you think you'll only be around there for 4-5 years, you're probably better off going with a low-fee fund. While the employer won't keep matching your investment, the fund will still keep chomping away at your capital through its compounding fees.

For more information on how seemingly innocuous fund fees can devour most of your retirement fund, read our previous post, "How Your 401(k) Is Ripping You Off."

(Photo: Getty)

Sensation Seeking, Overconfidence, and Trading Activity (PDF) [via NYT]
(Photo: Getty)

Fees are often disguised and given funny names, like "administration fee," and "marketing fee" (apparently you have to foot the cost of selling the fund to other investors?). Fees are lumped together into the vague euphemism of "expense ratios." In the chapter, Bob describes how these fees can hit workers investing in their 401(k) plans the hardest as the funds sometimes have trumped up expense ratios because that they include "revenue sharing payments." This is another euphemism, and it stands for the kickbacks that the funds pay some 401(k) administrator for pushing you towards these funds (ever wonder why there's often such a limited set of funds to choose from? Sometimes the administration company only wants to steer you towards those funds they're getting paid off from). How bad can these expense ratios get?

A 2006 study by Congress found that increasing fees by 1 percentage point results in you having 17% less money money when you retire.

In their example, put $20,000 in a 401(k) for 20 years and you end up with $58,000 if the fees are 1.5%. But if they were .5%, you would have $70,500. That's a lot of money. Increase the time to 35 years and what would be $220,000 drops to $163,000.

If you invest $1,000 at age 20 with an 8% return and 2.5% expense ratio, and just leave it there like that until you're 85, you will come out with $35,250, while your fund manager rakes in a cool $126,432.

How is this possible? Well we all know how great compounding interest is, right? This is the same thing in reverse, the costs are compounding. Quietly. Rapaciously.

Before putting your money in a mutual fund, especially one in your company's 401(k) program, do your research. Punch the funds into Google Finance first and, under "key statistics," and compare the expense ratios. Oftentimes an index fund is the best choice. These funds are managed by computers and track broad market segments. Their expense ratios are low, like .18%. Vanguard is a good place to look at for index funds.

What happens if you find your company's 401(k)s have high expense ratios? Bob recommends staying away from funds with over 1% expense ratios and says,"Ask about the last time your plan was "put out to bid." If it's been a while, encourage your human-resource department to ask for bids again. The industry is getting more competitive, and a new third-party plan administrator might offer cheaper funds."

(Photo: Getty)

As we look up at CNBC, the down is currently down 179 points. From the NYT:

"There can be no doubt that the timing of this morning's move is aimed at supporting global financial markets after yesterday's global equity meltdown," Joshua Shapiro, chief United States economist at MFR Inc., wrote in a research note Tuesday morning.

"At this stage, you can say there is panic selling in the market," said Kwong Man Bun, the chief operating officer of KGI Asia Ltd., a large Asian futures broker. "We don't think the Hang Seng index has found its bottom yet; the index will continue to go down and will only find its bottom when external markets — namely, the U.S. market — stabilize."

"I'm not going to close the door, but I'm not suggesting that anyone believes it has to be bigger" than the $150 billion figure already discussed.
...Perino said the White House is not proposing an even bigger economic package at this point, but she declined to rule one out, either. The sharp decline of markets in the United States and around the globe is tied in part to the perception that Bush's outlined stimulus package would not do enough to avert a recession.

Perino said the White House does not comment on daily fluctuations in the market. But she did say that people should have confidence in the underlying strength and long-term prospects of the U.S. economy.

"We are not forecasting a recession," Perino said. "Clearly there is a slowdown."

White House Flexible on Stimulus Plan [AP]
U.S. Markets Open With a Steep Fall [NYT]
(AP Photo/Richard Drew)

In an apparent reference to investors' anger, he said: "I can assure you, you will be going through a metal detector." He ended the conference call by saying "Let's go. There's no questions. Let's get the [expletive] out of here."

Sallie Mae spokesman Tom Joyce called the metal-detector remark "an attempt at humor" and the expletive "an unfortunate slip of the tongue." Mr. Joyce said the call had been intended for Mr. Lord, in his new role, to give investors a "broad overview" of the company's situation.

Sallie Mae: Expletive Included [WSJ]
Full Conference Call Transcript [Seeking Alpha]
(Photo: Susan Biddle)

The most common schemes are over-hyped investment returns, unsuitable annuities, and Ponzi schemes, and the most important first step to avoiding all of them is to do a little background check on the broker you're considering. If you're going to be scammed—at least have the decency to be scammed by a licensed stockbroker!

From Kiplinger:

Be suspicious of any sales pitch that promises unrealistic returns. "Anytime you're talking about average returns of greater than 12%, you're not in the ballpark," says Jim Eccleston, a securities lawyer in Chicago. In the BellSouth case, not only were investors led to believe they could earn about 12% per year, they were also told they could afford to withdraw 9% of their funds annually for 30 years.

Before doing business with a broker, check his or her background using Finra's BrokerCheck tool. Look for disciplinary actions taken against the broker, as well as red flags — for example, the broker has frequently changed firms.

If the adviser is a certified financial planner, check his or her credentials with the CFP Board of Standards. Also consult the Senior Investor Resource Center and the SEC's senior investor page.

Just checking whether the broker has a securities license can keep you out of serious trouble. "Maybe one in ten of our cases involve a licensed stockbroker," says Colorado securities commissioner Fred Joseph. Many of the most notorious purveyors of bogus investments never held a license.

You should also make sure to open an account with an actual financial institution. Don't just write a check to "Bob Awesomebrokerville."

Protect Your Retirement From These Investment Scams [Kiplinger]
(Photo:Getty)

Angelakis told the conference, with what we imagine was a straight face,

We will fight in the streets and do everything we can for retention but I think the expectation that I have is we will lose some share in the video side.

"Comcast sees customer loss in '08" [Reuters]
(Photo: akeg)

For instance, he dissects the way mutual funds are created, culled to isolate the best-performing ones, and then marketed as if they're built on sound strategies and not luck:

The mutual-fund industry was all but founded on [survivorship bias]. Firms create ("incubate") far more funds than they need and fill each with different investments. Some win, some lose. Guess which ones go on to get marketed and which get quietly closed? Decades of research have shown that the average managed stock fund falls miserably short of the broad market's returns. Yet survivorship bias ensures a constant supply of magazine ads with splashy performance figures. Dead funds tell no tales.

• they're based on a strong correlation
• they're based on logic
• the strategies are carefully screened to eliminate survivorship bias and to ensure the clue in question is the best explanation for what's happening, and not some other, hidden variable
• the strategies are practical
• the strategies can be reduced to the language of stock screeners

Of course, he saves the actual strategies for the book, but says he'll excerpt two of them in future columns over the next couple of weeks.

"Author Debunks Financial Parlor Tricks" [SmartMoney]
(Photo: Getty)

5. "It's too late for me to start investing for retirement."
You can always benefit from starting to invest pronto, Tonto. Max your 401(k), and look into Roth and traditional IRAs. If you're over 50, there are catchup contributions you can make.

4. "I got a late start, so I'll invest aggressively to compensate."
You could unnecessarily expose your savings to market mood swings. Whenever you start, your investment strategy always needs to account for your risk tolerance and how much time you have before retirement.

3. "My retirement savings need to last only 10 or 20 years."
Don't be such a sourpuss, you might live longer you think. "For every 65-year old couple, there's a 72% chance that at least one will live to age 85."

2. "I need a dozen or more funds for my portfolio to be diversified."
If the funds themselves are diversified, you don't need a gaggle of them.

1. "When I retire I should move out stocks."
Inflation can Pac-Man your return.

(Photo: Australian Portfolio)

Transparent Investing [Official Site]

From Reuters:

The SEC earlier this year launched an initiative to cut the profit potential for stock-touting spam, and said on Thursday that spam-related complaints to its online complaint center have been cut in half.

The agency also noted that recent reports indicate a significant drop in the stock market spam getting to e-mail inboxes.

"Because of our aggressive enforcement efforts, there has been a reported 30 percent drop in financial spam, and that means fewer investors are getting ripped off," said SEC Chairman Christopher Cox in a statement.

The Symantec Internet Security Threat Report released on Sept. 17 said the decrease "is due to a decline in spam touting penny stocks that was triggered by actions taken by the United States Securities and Exchange Commission, which limited the profitability of this type of spam by suspending trading of the stocks that are touted."

US SEC says its anti-spam efforts cutting fraud [SEC]
(Photo:MovieScreenshots)

1. Direct 90 percent of your U.S. equity allocation into a total stock market index fund that automatically gives you a stake in thousands of companies. That guarantees you a piece of every superstock that already exists or might emerge later - and, more important, it means you'll be adequately diversified and your investing costs will be at rock bottom.

2. Pursue your search for the next Microsoft or Google by researching the daylights out of a very small number of companies and putting the remaining 10 percent of your portfolio into your one to three best ideas. This way you'll let yourself have a little fun. You will also minimize your risk and maximize your hope.

We're not sure "hope" is a valid investment strategy, but we know what they mean. It doesn't take a massive, complicated collection of investments to do well in the long term, simply an easy, consistent, focused method of saving and investing.

How many stocks should you own? [CNN Money]

— FREE MONEY FINANCE

(Photo: Getty)

After reading a scientific article in the Journal of Science claiming exactly that, we put together two mock stock portfolios. One contained companies that both scored in the top 20% of the American Customer Satisfaction Index (ACSI) relative to their competition and beat the national ACSI average. The other was the reverse, companies scoring in the bottom 20% and having scores lower than the national mean.

Since May, when the portfolios began, the ACSI fund is down 5.63%. The ANTI-ACSI fund is down 8.16%. Also, we messed up. Overview inside...

It's much too early to draw any sort of conclusion whatsoever but we thought you might be interested in seeing how they were doing so far.

We realized two things we did very wrong:
1) We're a month behind in reporting the changes, somehow we miscalculated 4 months (we figured for four months in advance, rather than four months inclusive... doh!)

2) The ACSI index covers over 200 companies, but it only releases new scores for a limited number of industries each quarter. That is, different industries take turns getting reported each quarter and you don't see the industries next set of scores until 12 months later. Therefore... we have a bunch of number crunching to do and have to evaluate and buy a crapload more companies, backdated to their May prices when the experiment began. Good thing we're only playing with imaginary money!

PREVIOUSLY:
The Consumerist ACSI Fund v2.0
How To Beat The Stock Market: Buy Companies With High Customer Satisfaction Scores

Guess if you can't import as many cheap and deadly products from China, it's going to undermine the bottom line...

Wal-Mart falls after Merrill downgrades to 'sell' [Reuters]
(Photo: Walmartopia)

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