Balanced funds also get support from Adam Bold, founder of the Mutual Fund Store, an Overland Park, Kansas-based investment advisory firm. â€śBalanced funds are always somewhat of a safe haven because they offer some downside protection as well as upside growth potential,â€ť he says. Among his favorites are James Balanced: Golden Rainbow Fund (GLRBX) and Permanent Portfolio (PRPFX), which holds precious metals; Treasury bonds; stocks; and assets denominated in Swiss francs. Permanent, which lost 8.4% in 2008, has a 10-year return of 8% that is considered among the best of all balanced funds. Says Dean Barber of Barber Financial Group in Lenexa, Kansas: â€śItâ€™s a one-stop shop for hedging against inflation. The manager has done an impressive job which has served his shareholders well.â€ť
Corporate bond funds. While investors flocked to Treasuries in 2008, many ditched corporate bonds. Thatâ€™s a trend that may change in the coming year. â€śFrom a risk-return perspective, investment grade corporate bonds may be more attractive than stocks now,â€ť says Morningstarâ€™s Jones. Why? Bonds issued by solid companies trade at depressed prices so yields are up. Funds holding such bonds offer yields as high as 6% or more these days. If the economy strengthens and high-quality corporate bonds regain some of their value, investors could enjoy double-digit returns historically produced by equitiesâ€”without bearing stock-fund volatility. Among funds holding high-grade corporate bonds, Westcore Plus (WTIBX), which lost less than 2% last year, boasts a strong 10-year return of 5.35% through January 2009.
Municipal bond funds. The story here is similar to the one for corporate bonds. Fearing that a weak economy will cause fiscal problems for states and cities, among other technical market factors, investors have sold municipal bonds. As a result, prices have dropped. Funds holding highly rated issues now yield 4% or more. Whatâ€™s more, municipal bond interest is exempt from federal income tax. [See â€śGetting More for Your Muni,â€ť Moneywise, February 2009.] Boldâ€™s selections of muni bond funds include T. Rowe Price Summit Municipal Intermediate Fund (PRSMX) and American Century Tax-Free Bond Investment Fund (TWTIX), both of which had scant losses last year andÂ boast 10-year returns in the top 15% of their category.
Convertible bond funds. These funds hold bonds and preferred stocks that can be converted into the issuerâ€™s common stock. â€śThey give you the opportunity to focus on income during a down market and also take advantage of capital appreciation in an up market,â€ť says Tracy Brown, a financial adviser with William Tell Financial Services in Latham, New York. â€śAlthough there are no foolproof mutual funds out there, a convertible bond fund and an intermediate-term bond fund can help investors who are looking for wealth preservation.â€ť Among convertible bond funds, Brown is attracted to Franklin Convertible Securities Fund (FISCX), which currently yields more than 8% and has one of the categoryâ€™s best 10-year records.