-- The Golden Oldies
If you like the idea of having a smart fund manager picking stocks for you, you could toss some money into a fund that has had a good long-term record -- funds such as Sequoia, Third Avenue Value, Dodge and Cox Stock or Longleaf Partners.
Over the last few months, investors have fled these and other less-renowned funds because managers have suffered deep losses.
The Sequoia fund, for example, did better than most but fell 27 percent last year.
That's horrible for an investor, yet in the fund industry it's considered a win because the loss is not as severe as the drop in the S&P 500. The SPY exchange-traded fund fell 36.8 percent last year.
Research by Morningstar Inc. suggests that index funds, like SPY, tend to do better over time because they charge less in fees compared with funds that employ managers to try to pick winners among stocks.
But some Golden Oldies have been standouts, earning their keep despite higher fees.
Over the last 10 years, the Sequoia fund has averaged a 0.74 percent return annually, according to Morningstar. That's not much to get excited about. But the S&P 500 did worse, with the SPY fund suffering an annualized loss of 3.43 percent.
-- The cautious approach
Investors who want to dip a toe into the stock market but aren't sure they want to dive right in can hedge their bets with a so-called balanced fund, which puts about half of your money in stocks and about half in bonds.
By combining stocks and bonds, balanced funds typically don't decline as much as the overall stock market. The Vanguard Balanced Fund, for example, lost 22 percent last year.
But some respected balanced funds, such as Dodge and Cox Balanced, stumbled badly in the treacherous market as both stocks and corporate bonds were snared by losses in the credit crisis. The fund declined 33.6 percent last year.
Some balanced funds to consider: Janus Balanced, Oakmark Equity and Income, Vanguard Wellington and FPA Crescent.
Gail MarksJarvis is a Your Money columnist. Contact her at gmarksjarvis@tribune.com.
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