Finding Shelter From the Storm

Stock mutual funds were all wet in 2008. Heres where to invest now to avoid getting soaked.

So, what’s in store for 2009? Is there any vehicle that’s safe?  “To many people, a safe investment is one where you won’t lose any money,” says financial planner Vicki Brackens of Brackens Financial Solutions Network, an affiliate of MetLife in Syracuse, New York. “If that’s your definition, and you’re looking for safety, you shouldn’t be in mutual funds. Saying you want a ‘safe investment’ is like saying, ‘I want to go swimming but I don’t want to get wet,’” she says. “Mutual funds have risks. Investors should focus on managing the risk they’re taking in order to aim for attractive returns.”
Bond funds can be a key element in risk management. Investors tend to worry about accumulating losses over fewer years—and usually far less steep—than individuals who purchase stock funds.

That doesn’t mean that you should give up on equities; many have been winners over the long haul. Allocating fixed-income funds among your portfolio holdings can keep you from losing too much ground during bear markets though. That’s been true for Gerald and Evelyn Williams, both 61-year-old retirees living in Syracuse. Aside from cash and real estate, their investment portfolio is divided in the following manner: a third in bond funds and the remainder in stock funds, according to Brackens, their financial adviser. While the Williams’ equity investments lost a little more than 30% in 2008, their bond funds produced a loss of roughly 11% last year, helping to ease the overall pain. “It was a little scary,” Evelyn recalls, describing how she felt when their stocks slid last year. However, as Gerald asserts: “It was not as bad as it could have been, because we are diversified.”  The two are still invested in a handful of bond funds, including the Loomis Sayles Strategic Income Fund (NECZX) and PIMCO Total Return Fund (PTTDX).

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