Over a three-year period ending March 31, 2001, a portfolio of 100% stocks returned a total 4.39%. For that same period, a portfolio of 50% stocks, 40% bonds, and 10% money market provided a total return of 8.74%.
Within stock funds you should diversify among the different categories of the stock market. You want a mixture of growth, value, large cap, mid cap, small cap and international funds.
Should I move out of mutual funds since the market is down?
Remember you are a long-term investor. When major stock market averages go down like they have in the last 18 months a buying opportunity is created.
The stock market has outperformed safer investments over the long run. A dollar invested in the money market would have yielded a 3.8% annual return over the past 75 years and would be worth $17 today. If you invested a dollar in S&P 500 stocks over the same time period it would be worth nearly $2,600 representing an 11% rate of return.
How do I know how my mutual fund is faring against other similar funds?
Compare your fund to an index. The index is a benchmark, a composite of like funds. As a hypothetical example, if a small company index was up 5% for a three-year period ending September 30, 2001 and your small company fund was up more than the index then you "beat the index" of other small company funds. Your newsletter contains the comparable index for each fund in your plan.
