Our nation’s current financial crisis is the most complicated set of events we could ever dream of. Banks facilitated the growth in mortgages by assuming house values would continue to rise, the economy would stay strong and provide jobs to new homeowners, and the stack of cards wouldn’t fall all at the same time. Wall Street firms took the mortgages, repackaged them as mortgage-backed securities and made convoluted bets (read gambling, not investing here) on exotic mortgage securities. For the most part, these securities and the credit swaps that came with them were nothing more than bets, which have now failed for a complex set of reasons.

Many of the failed investment banks went under for reasons that were quite basic and complex. They collapsed because they forgot the very principles they should be basing their business on such as diversifying and understanding the risks associated with one's investments. The fact is—the swaps business became so complex, no one understood the risks they were taking. Here are a few lessons for financial firms—most of which they have been preaching to their customers for years.

Lesson 1: Know how much risk you are taking and remain diversified
It wasn’t enough to make big bets on what was considered a safe investment—mortgage-backed securities. In order to stay ahead of the game and increase returns, the failed banks took on obscene amounts of leverage. Two of the leading investment banks that failed, Lehman Brothers and Bear Stearns leveraged around 30 to 1, meaning that for every $30 wager, they put up only $1 and borrowed the rest. With this much leverage, the value of the investment would be wiped out if it lost just 4%.

As individuals we would never take on leverage to that extent. Yet you could be inadvertently doing the same thing if your retirement funds are concentrated in your employer's stock. Many employers provide matching contributions to a 401(k) in the form of company stock. For example, when Bear Stearns collapsed, employees owned more than a 30% of the companies stock. In a recent survey from Hewitt Associates, a global human resources consulting and outsourcing company, shows that more than a quarter of employees’ 401(k) portfolios are in company stock. Fortunately, you can do something about this without incurring any tax consequences. Simply adjust your investment mix, by reducing the amount of money held in company stock. It should be less than 10 percent of the total value of your 401(k) plan.

In many cases, employees are doing just that and are now shifting to a safer mix. According to the recent data, the amount of 401(k) assets held in equities is at an all-time low, with only 53.8 percent of assets on average, compared to 68.1 percent a year ago and down from its high of 74.2 percent in 2000.

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