From Dustin Woodard,
Your Guide to Mutual Funds.
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After the famouse Enron scandal where employees saw their forced company stock investments shrink from $80 a share to just pennies and after years of layoffs and company crashes, you'd think that investors would have figured out that investing in their own company's stock can be very dangerous. Well, they haven't!

In 2003 the Washington Post reported that the average 401(k) account still had 42% of the worker's money investing in the company's stock. 3 out of 4 employees had more than 50% of their retirement account in their company's stock.

How can this be? Why would investors ever believe it is a good idea to load up on a single stock? Here are some possible reasons:

• Employees think they have a better feel for how much their company's stock is worth - though they may feel they have a better idea because they have inside knowledge on upcoming products or projects, any seasoned investor knows that a company's stock price is affected by many other factors such as industry trends, investor sentiment, interest rates, PR, company financials, unforeseen events and the overall economy.
• Companies will sometimes match employee contributions with company stock - I'm all for maximizing company matching. If the company matches your contributions with stock, then make sure your contributions are not in your company stock.
• Employees want to show faith in their company. Newsflash: your company is not paying attention to how you invest for retirement. If anything, you are showing how bad of an investor you are. Even Bill Gates constantly sells large amounts of Microsoft stock to diversify his holdings.

Investing in a single stock is risky, but investing in the stock of the company you work for is even more dangerous. You are already risking your current financial status and well being by working for the company, I'd hate to see you lose your job and your future financial status (retirement) if something happens to your company. No matter how strong your company may seem, it CAN go out of business.

Treat your company stock as a gamble. You don't want to put all your money into it, no more than 10% and if you are investing in other individual stocks outside of your retirement plan, then it would be wise to lower it even more. Take advantage of the mutual funds your company has selected for your retirement plan. Diversification is the name of the game.

To learn more about diversification, I suggest the following articles:

• What is a Mutual Fund?
• Mutual Funds vs. Stocks
• Quick Guide to Morningstar's Style Box