In the interest of full disclosure, the absolute worst investment I've ever seen is an advance-fee offer from a long-lost Nigerian pen pal named Dr. Clement Okon -- a man who knows neither the proper use of a thesaurus nor how to turn off CAPS LOCK.

Just how bad is this investment? According to a report in The San Francisco Chronicle, "Dr. Okon" and his, er, colleagues bilked Americans for a record $198.4 million in Internet fraud in 2006 -- with the "notorious 'Nigeria 419' scam ... blamed for the largest individual losses."

When bad comes out of good
While not as bad as the Nigerian scam, the worst stock market investment I've ever seen has also cost Americans a ton of coin -- though it's 100% legal.

Before I name names, some background: Index funds and exchange-traded funds are hugely popular. Hundreds of billions of dollars are tied up in index funds; the mammoth S&P 500-tracking Vanguard 500 Index (VFINX) alone holds $75 billion in total assets.

As I've written before, this is a decidedly good thing. With so many active funds failing to beat that one bogey (the large-cap-laden S&P 500) while charging more in fees, betting with the house is a sound strategy. Indexing gives you instant diversification, low turnover, and best of all, low costs.

So the theory goes
Take the very first index fund, for instance. Vanguard 500 has an expense ratio of 0.15%. It has no loads, 12b-1 marketing fees, or other hidden costs. So for every $100 you invest in Vanguard 500, you're dinged $0.15. Good deal, right? Hold that thought.

The First American Equity Index fund is also an S&P 500-tracking index fund. According to the fund's website, its objective is to "provide investment returns that correspond to the performance of the S&P 500 index." As you'll see, it's nearly identical to the Vanguard offering:

VFINX Major Holdings
(% of total assets)

FAEIX Major Holdings (% of total assets)

ExxonMobil (3.96%)

ExxonMobil (3.86%)

General Electric (2.49%)

General Electric (2.42%)

Procter & Gamble (2.08%)

P&G (2.04%)

Microsoft (2.06%)

Microsoft (2.03%)

Johnson & Johnson (1.90%)

J&J (1.88%)

JPMorgan Chase (NYSE: JPM) (1.68%)

JPMorgan (1.64%)

Chevron (NYSE: CVX) (1.66%)

Chevron (1.66%)

AT&T (NYSE: T) (1.62%)

AT&T (1.58%)

Bank of America (NYSE: BAC) (1.57%)

Bank of America (1.53%)

Wells Fargo (NYSE: WFC) (1.22%)

Wells Fargo (1.19%)

Data from Morningstar; holdings as of Sept. 30, 2008.

That's just a sampling. The allocations to smaller S&P 500 holdings like Agilent Technologies (NYSE: A) and Kellogg (NYSE: K) will have about the same slight variance.

While the holdings are almost identical, the fee structure is not. Here's what shares of First American Equity Index cost:

Yes, you read that right: This is an index fund with a hefty front-end sales load and an expense ratio more than three times the size of its most notable competitor.

It's no small fry, either -- the fund has $1 billion in total assets.

More where that came from
I don't mean to single out First American Equity Index; it's not the only outrageously costly index fund:

Fund

Load

Expense Ratio

Total Assets Continued...