Ask most people where their money is going and they'll come up with a quick answer.

"Down the drain."

I suppose we could call that witty in a fiduciary noir sort of way. But it isn't very informative.

In fact, we might learn some important lessons if we had a window on our collective investment decisions. Fortunately, we do.

The window is on the Hewitt Associates web site, www.hewitt.com. Hewitt, one of the major employee benefits consulting firms, launched their Hewitt 401(k) Index in mid-1997 and has been tracking our collective decisions ever since. Month by month they track the contributions, exchanges, and asset allocation in large employer plans with billions in assets. They track the money flow in and out of a dozen asset classes that range from money market funds to emerging markets and company stock. The flow follows our decisions to redeem an asset we already own and to reinvest the proceeds in another asset.

To provide a quick indicator--- instead of 12 confusing changes--- they also summarize the movement of money each day, reducing it to two categories, equities or fixed income. It's not very surprising that money has been moving into fixed income since last summer.

Indeed, we've reversed directions in a single year. In January 2000 our biggest single transfer into an asset class was into company stock. In the same period, our biggest transfer out of an asset class was from GICs (Guaranteed Insurance Contracts). We left safety for higher risk.

The pattern reversed during the year. After a last hurrah of money into company stock last June, we've been moving money out of equities and into fixed income every month. More important, company stock has been our biggest sale in most months since the market peak in March 2000.

Our Collective Monthly Big Transfers

Month	Biggest Transfer In	Biggest Transfer Out
January, 2000	Company Stock	GICs
February, 2000	Small U.S. Equity	GICs
March, 2000	Mid U.S. Equity	Large U.S. Equity
April, 2000	Large U.S. Equity	Company Stock
May, 2000	GICs	Company Stock
June, 2000	Company Stock	GICs
July, 2000	Money Market	Company Stock
August, 2000	GICs	Company Stock
September, 2000	Money Market	International Stocks
October, 2000	Bonds	Company Stock
November, 2000	GICs	Company Stock
December, 2000	Bond Funds	Small U.S. Equity
January, 2001	GICs	Company Stock
February, 2001	GICs	Large U.S. Equity

Source: www.hewitt.com

I read this as entirely sane behavior. We're reducing risk to a tolerable level by using two very powerful levers in our 401(k) portfolios. The first lever is our exposure to a single stock, the stock of our employer. While it may feel disloyal to sell employer stock, the brute fact is that individual stocks are highly volatile and risky. The average stock in the S&P 500 Index, for instance, has had a standard deviation of 65 percent in the last 3 years, according to the Morningstar database. That's over 3 times as volatile as the S&P 500 Index as a whole.

The second lever is to reduce our exposure to stocks by substituting fixed income securities. While the average domestic stock fund has had a standard deviation of 24.57 percent over the last three years, the average fixed income fund has had a standard deviation of only 4.81 percent. That's one fifth as much. Substitute fixed income for company stock and you can reduce risk dramatically.

How dramatically?

Very. If you have 75 percent of your 401(k) account in an average domestic equity fund and 25 percent in your employers stock, the standard deviation of your portfolio would be nearly 35 percent, meaning there is a two-thirds chance it will fluctuate in value by plus or minus 35 percent a year. If you substitute a bond fund for your employers stock, the standard deviation will be nearly cut in half, to about 19.63 percent.

Millions of relatively new investors are learning that the volatility you love on the way up is a killer on the way down.

Expect a continued move out of company stock and into fixed income funds.

Want to follow the Hewitt 401k Index on a regular basis? Then check these pages:

1. Explanation of the index

2. Asset Classes Used in the index

3. URLs to monthly index figures

4. March index

Tuesday: The High Price of Company Stock in 401k Plans