Stocks; Cars; Telephones; Did You Know That...;Retirement Plans.
When the Nasdaq takes a dive, don't blame the big Wall Street investment banks or brokerages. The individual investor is the more likely culprit. Individuals now account for more than 60 percent of the Nasdaq's daily trading volume, says Steve Galbraith, an analyst at Sanford C. Bernstein & Co., a New York investment management and research firm. "The individual investor is no longer the tail wagging the [market] dog; he is the dog."
Individual investors are the force behind the enormous explosion in stock market turnover. For the first two months of this year, turnover jumped to almost 400 percent on the Nasdaq and 100 percent on the New York Stock Exchange, says Galbraith. The typical Nasdaq stock is now held for only 95 days, down from almost 140 days last year, while the typical NYSE share is held for about a year, down from 1 1/4 years.
Individuals are also becoming key players in the market for initial public offerings. They're the most active buyers of IPOs on the first trading day, accounting for much of the large opening-day price run-ups, and the most committed owners of these stocks. One year later, individual investors still own almost 70 percent of these shares. (Institutional buyers hold the rest.) Borrowed money underpins much of this elevated trading activity, and individual investors now account for more than half of this borrowing, or margin debt.
For cosmetic repairs at least, aftermarket replacement parts are just as safe as the original manufacturer's, according to a study by the Insurance Institute for Highway Safety. It should be noted, however, that auto insurers fund the institute, and these findings are advantageous to the auto insurance industry, since aftermarket parts are less expensive than parts from the carmaker.
Until recently, insurance companies typically directed repair shops to use aftermarket cosmetic parts. Some companies have temporarily suspended that practice following a court ruling that required State Farm to pay more than $1 billion last year for defrauding policyholders with such repair practices. That decision is being appealed.
To prove the safety of aftermarket replacement parts, the insurance institute crash-tested a 1997 Toyota Camry with a replacement hood manufactured by a certified aftermarket supplier. The result: After a crash at 40 miles per hour, this Camry performed as well as one with its original hood intact, and better than many other midsize cars sporting their original hoods.
"Claims that aftermarket cosmetic parts could compromise safety are red herrings to try to frighten people," concludes Brian O'Neill, president of the insurance institute.
Be careful if you dial 10-10 plus three other digits before placing a long-distance call. These so-called "dial-around" services, which let you bypass your regular long-distance carrier, often charge hidden fees, including steep minimums for brief calls. Many require that you sign up for their service as a secondary provider in order to qualify for their lowest rates. Some also change rates frequently.
Before you sign up or make the call, ask the dial-around's customer service department for the lowdown on its rates, advises the Federal Communications Commission. While you're at it, ask who owns the service. AT&T owns Lucky Dog, which uses the 10-10-345 prefix; MCI WorldCom owns 10-10-321 and 10-10-220; and Excel, the fourth largest long-distance carrier, owns Telco Communications Group, which is the proprietor of 10-10-297 and 10-10-399.
The FCC and the Federal Trade Commission recently issued a joint policy statement intended to end misleading advertising by dial-around and other long-distance services. "Dial-around services are unique in that consumers typically incur charges for using them before receiving any information other than what is conveyed in the service's advertising," the agencies noted.
The agencies want clear and conspicuous disclosure of any limitations on the availability of advertised rates. These include promotional teaser rates that end after a certain date, reduced per-minute rates that are available during limited hours only, and any geographic restrictionssuch as higher rates for in-state calls.
The typical 401(k) plan now offers nine investment options, matches a portion of employee contributions, and provides daily valuations of fund balances. All three benefits were enhanced last year, according to a recent survey from Hewitt Associates, a Lincolnshire, IL, human-resource consulting firm. In 1997, when Hewitt did its previous biennial survey, the typical 401(k) offered just seven investment options.
In 1999, the average 401(k) also let employees contribute a maximum 15 percent of their pre-tax salary, transfer balances between funds on a daily basis, and borrow from their account. The increased number of benefits, combined with more efforts to educate employees about investing, seems to have paid off. Seventy-eight percent of eligible employees participated in 401(k) plans in 1999, contributing an average 6.7 percent of their salary.
The table below shows the most common investment options offered by 401(k) plans and how they've changed over the years. Large-cap equity funds (including index funds) and foreign equity funds have become more popular, while balanced funds have lost some appeal and money-market funds have stagnated. The pie chart illustrates how employees choose among these options when allocating retirement assets.
Bernice Napach. Financial Beat. Medical Economics 2000;10:19.