Q: Should I invest my 401(k) funds in company stock?

A: No.

A recent study revealed a very troublesome trend.

Most of the cash in the the retirement plans of some of the nation's biggest blue chip firms was sunk into company stock.

Since the Enron fiasco, employees are painfully aware of the dangers of investing their 401(k) funds in company stock. But it shouldn't take a meltdown like Enron to dissuade employees from making this mistake.

Don't be fooled into believing that, because you work at a company, you have some special insight into how that company's stock will perform.

Your paycheck depends on the economic health of your employer. Don't make the same bet with your retirement money.

You want a portfolio that has the right asset allocation for you and is globally diversified. If you invest in company stock, you are violating basic rules of investing by concentrating assets in one stock. This gives you much more risk, without a commensurate increase in expected returns.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008)

Tough Retirement Questions: Should I invest my 401(k) funds in company stock? originally appeared on BloggingStocks on Wed, 16 Jul 2008 06:00:00 EST. Please see our terms for use of feeds.