Suze Orman Money Matters

Last month, the U.S. Supreme Court heard an interesting case involving the claim by an individual that his employer didn't follow his instructions to sell stock in his 401(k) account and reinvest the money in cash. In fact, the employee claims he made the trade request twice, but didn't realize until 10 months later that the trade hadn't occurred.

By that time, he claims, he'd lost $150,000 because the trade was placed in 2000 -- right when the market was getting ready for its big fall.

The Supreme Court is addressing a procedural issue pertaining to the suit: Whether an individual employee can sue an employer for breach of fiduciary duty. Typically, the law has been interpreted to apply only when the employer (plan) breaches any duty to all participants, not individuals.

Prudence, Not Paranoia

What caught my interest was the fact that the employee says he didn't realize the trade hadn't been executed for 10 months. I'm in no way absolving the plan/employer for not processing the trade in a timely manner, but at the same time this is a perfect example of how assuming can cost you a ton of money.

It's prudent, not paranoid, to always verify and confirm that you know -- not think, but know -- that every aspect of your financial life is in order. The Supreme Court wouldn't have had any case to hear if the employee had doggedly made sure he had verification that the trade went through.

With that in mind, here's my list of common bad assumptions that can cost you plenty:

• The money got moved.

Whether you're moving money around within a 401(k), doing an IRA rollover, or simply making an ATM deposit, it's important to take one simple step: Check that what you think you did actually occurred.

As the case before the Supreme Court proves, screw-ups happen. So keep records of everything. If you made an online trade, print out the confirmation. Keep ATM deposit slips. File away all correspondence from a rollover.

It's easy to shred them later on, when you confirm that everything is fine. But on the chance that something goes wrong, you'll be sitting on a mound of terrific evidence to get the case resolved in your favor.

• Due dates are etched in stone.

Credit card companies aren't shy about moving around the due date on your bill, even if it's just a day or two earlier. That can end up costing you $39 for a late-fee charge if you don't notice and the payment arrives a day or two late.

Even worse, if you don't carry a balance, your card issuer can hit you with a finance charge on the unpaid "late" balance on the technicality that you didn't pay it off by the due date.

• Auto-enrollment is all you need.

If you're simply assuming that your employer took care of everything when you were automatically enrolled in your company 401(k) plan, you're wrong. I love the whole push toward auto-enrollment; it's a great tool for getting more employees to save for retirement.

The problem is that, quite often, employers will set employees' contribution levels into the plan at a very low rate -- say, 1 or 2 percent of salary. That's simply not good enough. At a minimum, everyone should contribute at a high enough percentage to get the maximum company matching contribution; often, that'll be as much as 3 to 6 percent of salary.

Take a look at the bigger picture: You can't assume the 1 to 2 percent auto-enrollment rate is going to take care of all your retirement needs. You need to do a lot more.

• Your portfolio can be on autopilot.

Unless you solely invest through a lifecycle fund, where the fund automatically re-jiggers to keep the proper allocation, you need to rebalance at least once a year. According to one survey, investor losses in the 2000-2002 market downturn could have been halved if people had paid attention to keeping their portfolio allocations in line with their long-term goals.

That means scaling back holdings that have had a lot of appreciation and adding to positions that are now underweighted.

• You pay your bills on time, so your credit profile must be fine.

Identity theft remains a huge problem. You may be doing everything right in handling your debt, but you can't assume that no one has co-opted your financial identity and taken out credit cards in your name.

It costs you absolutely nothing to check your credit reports for any mistakes or mysterious accounts. Go to AnnualCreditReport.com.

• Your home is fully protected.

We see the stories every time there's a big natural disaster: People find out too late that their homeowners insurance policy won't pay out enough to cover the cost of rebuilding or repairing their home. Quite often, people haven't made sure that their policy has kept up with rising construction and material costs.

Two of the most important features you need in your insurance policy are an automatic inflation guard and what is known as extended replacement cost coverage. The inflation guard will automatically increase your policy coverage by a set amount to keep pace with rising construction costs. Extended replacement coverage will entitle you to a potential payout that is 125 percent or more of the stated policy limit.

So, for example, if your dwelling limit coverage is $300,000 and you suffer a total loss that's covered by your policy, your maximum payout could be as much as $375,000 ($300,000 x 125 percent) or more.

• Once a good interest rate, always a good interest rate.

At the beginning of 2007, it was easy to find great savings account deals offering 5 percent interest. But given all the Fed easing of late, savings rates have fallen back to 4 percent or less. While that's to be expected given the Fed's actions, it doesn't mean you should just settle for whatever rate your account is paying. Plenty of online banks continue to offer high rates.

While I'm on the topic of interest rates, I hope everyone who bought a home in the past few years has taken the time to truly read -- and I mean scour -- their mortgage agreement to make sure they understand exactly what can happen to their loan. We all know that plenty of people who now are in the midst of a huge payment crunch claim they simply didn't realize what they were getting into. They assumed it would all be OK without paying attention to what could actually happen.

So please don't get caught assuming you know what your loan docs say. Check exactly what the rate adjustment could be; don't assume it'll be limited to the 2 percentage point increase that's been the norm. Don't assume you can refinance or sell without a big prepayment penalty.

No matter how bad the news may be, it's always better to know the facts and act proactively than just sit back and wait for your assumptions to land you in a big financial mess.