Few people can honestly say they saw the dark clouds on the horizon. Although the financial markets were lackluster through much of early 2008, there was scant reason to suspect the market maelstrom that followed. As we are all painfully aware, late fall saw stocks spiral downward faster than bankers, brokers, and insurers could beg for bailouts. Even a late glimmer of sunlight in December couldn’t prevent the year from becoming investors’ worst since 1931.
Mutual fund investors found few safe harbors to ride out the storm. On average, domestic stock funds lost about 39% of their value, according to mutual fund research firm Morningstar. International stock funds did even worse, dipping almost 45%. Specialized categories such as Latin American stock funds lost nearly 60%.
Some wise souls managed to find relative comfort, however. Masses flocked to the safety of Treasury bonds. Funds holding long-term Treasury bonds, for instance, returned more than 27% in 2008. Other types of fixed-income funds, however, lost ground. Still, the average bond fund loss of roughly 8% seemed positively dreamy compared to the beating stock funds took. Bond funds–especially Treasury bond funds–were among the few safe havens for mutual fund investors last year.