The collapse of Enron stock has made the vast majority of investors think twice about the way they invest. In fact, 72 percent admit they have changed their investment behavior as a direct result of Enron news, according to a new survey from Charles Schwab & Co., Inc. Yet only 27 percent of the survey respondents say they now "diversify more."

According to the Schwab survey, the top five ways investors have changed their behavior are:

1. I avoid companies I don't understand (33 percent)
2. I do more research (31 percent)
3. I diversify more (27 percent)
4. I pay more attention to financial advisors (22 percent)
5. I worry more (15 percent)

"One of Enron's most painful lessons is the danger of overconcentration in an individual stock -- just as the tech wreck of 2000 taught us we shouldn't be too heavily concentrated in particular industry sectors," said Carrie Schwab Pomerantz, vice president/consumer education of Charles Schwab & Co., Inc. and founder of Women Investing Now, an initiative designed to educate and inspire women investors. "Yet it seems investors may still not appreciate how diversification across and within asset classes can help protect a portfolio against worst-case scenarios."

The survey was conducted by telephone February 7-11, 2002, interviewing 620 adults who reported they have a 401(k) plan at work (364 men and 256 women). The interviews were conducted through Caravan, a national telephone omnibus survey. The survey was developed for Charles Schwab & Co., Inc. by Leflein Associates, Inc. and fielded by Opinion Research Corporation International of Princeton, New Jersey. The margin of error for this survey is +/- four percentage points.

Investing in Company Stock

The Schwab survey revealed that, of the investors who know that their company's stock is an investing option for them in their 401(k), 23 percent hold more than 20 percent of the stock in their own plan account. The 20 percent threshold is significant because it represents the beginning range of a concentrated stock position, which can significantly increase overall portfolio risk, according to the findings of the Schwab Center for Investment Research.

Interestingly, a fifth of survey respondents (20 percent) indicated they either don't know how much company stock they own, or they're unsure if their plan even offers this option.

"Employees should have a deeper understanding of their 401(k) choices, which involves an element of personal responsibility, too" said Schwab Pomerantz.

"Making smart investment choices is one of the most potent ingredients in building a healthy 401(k) account, added Ben Brigeman, senior vice president of Schwab Corporate Services. That's why we actively encourage employers who use SchwabPlan, our bundled 401(k) offering, to take full advantage of the educational workshops we provide employees in the workplace."

Intention vs. Action

A large majority of survey respondents (71 percent) believe they should review their 401(k) accounts at least every six months -- yet 61 percent actually do so. And, while only four percent say there's no need to ever review a 401(k) plan once it's been set up, 15 percent admit they have never reviewed their own.

"A retirement account, like any other type of investment account, shouldn't be left on automatic pilot," said Schwab Pomerantz. "We recommend that investors review their holdings at least once a year in order to make changes as needed, or whenever their personal circumstances change."

"During the course of a year it's likely that investments in different asset classes will perform at different rates, affecting your portfolio's overall balance," she said. "Rebalancing the mix on a regular basis keeps your portfolio risk in line with your personal tolerance for risk. It can also provide the forced discipline to sell high and buy low."

It Goes Beyond the 401(k)

The Schwab survey also revealed that as many as one-third (34 percent) of respondents don't know which companies constitute the largest stock holdings of their mutual funds. Another third (35 percent) have only "a general idea," and just 21 percent are "very clear."

"Without a clear picture of all the investments you hold -- in all the accounts in which you're investing -- you may be even more heavily weighted in a particular stock than you know," said Schwab Pomerantz. "You may be loading up on company stock in your 401(k) at work, plus have money invested in mutual funds elsewhere that have the very same stock among their top ten holdings," she added.

Investors are Seeking Advice

The Schwab survey also revealed that 33 percent of investors are less confident now than they were a year ago in their ability to choose investments that will perform well over time.

"Many investors need extra support right now, which is why we are offering complimentary 401(k) Checkups," Schwab Pomerantz said. "The Checkup provides an objective and realistic look at asset allocation, and advice on changes the investor may want to make."

Schwab's 401(k) Checkup is an assessment of an investor's holdings in 401(k) or other employer-sponsored retirement plans. The Checkup includes:

-- A discussion of retirement goals and current investment strategy.
-- Identification of significant exposure to certain risk (such as heavy equity or sector concentration).
-- Recommendations on how to reallocate asset classes to be better aligned with individual investing strategy.
-- Investors receive a three-page report.

Schwab has also produced the "Managing Your 401(k)" guide describing the four things every retirement investor should know. A Schwab "401(k) Checkup" kit and brochure are available by calling 1-877-561-5445, logging on to www.schwab.com or visiting one of Schwab's more than 400 offices nationwide. Investors can also visit The Learning Center on www.schwab.com, where they can select from a menu of 17 interactive online seminars covering a variety of important investing topics.

About Charles Schwab

Founded in 1974, The Charles Schwab Corporation (NYSE:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader, Inc. (member SIPC/NASD) and its other operating subsidiaries, is one of the nation's leading financial services firms serving 7.8 million active accounts with $846 billion in client assets through 429 domestic offices, 5 regional client telephone service centers and automated telephonic and online channels. About 25 percent of Schwab's client assets and 10 percent of its client accounts are managed by the 6,000 third-party, fee-based investment advisors served through Schwab Institutional. Schwab also offers a wide range of retirement plan services, including defined contribution plan investing, recordkeeping, and trustee services (through The Charles Schwab Trust Company) and makes available self-directed brokerage accounts (through Charles Schwab & Co., Inc.). The Charles Schwab, U.S. Trust and CyberTrader Web sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively (0302-7905).

Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc.

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