Editor's note: Some funds mentioned in this article are now closed to new investors.

Some small-cap funds have been attracting a lot of attention lately with eye-popping performance. Some have closed their doors to new investors, and some small-value fund managers have reached guru status. Brilliant stock-picking is always valuable in an actively managed fund. Awful stock picking can turn an otherwise good fund into a disaster. But in most cases, the success or failure of the asset class explains the success or failure of the fund.

I’ve been holding free workshops for investors for more than 20 years, and they’ve helped thousands of investors achieve higher returns and greater peace of mind while avoiding (or in some cases minimizing) the worst mistakes that so many people make.
In the fall of 2004 I launched a brand new workshop called “Investing After 50.”

An article on the history of mutual funds in the April 1999 issue of Money magazine sent me to the shelves of our in-house library, where I was pleased to find a dusty volume entitled "Common Stocks as Long Term Investments," by Edgar Lawrence Smith.

The most fundamental piece of investment advice I know can be summed up in one word: diversify. Every investor knows you shouldn’t put all your eggs in one basket. We are fervid advocates of diversification, and we believe that almost all investors should have some exposure to international stocks.

As we wrote a year ago, history shows that over long periods of time, the stocks of small companies have outperformed those of large ones. Small-cap stocks are one of the basic building blocks of our Ultimate Buy-and-Hold Strategy, and we think some small-cap exposure makes sense for most investors.

Every week on our radio show, Sound Investing, we have a popular feature called the Outrage of the Week. It’s entertaining, and we hope it helps alert investors to some of the ways their pockets can be picked by unscrupulous professionals, institutions and con artists.

Now it’s time to share one of these stories with you.

We stumbled onto this one last month while meeting with a client named Sandy, a 38-year-old fulltime mom whose husband works for an engineering company in Eastern Washington.