The bull is back. According to Ibbotson Associates in Chicago, large-company U.S. stocks have returned 10.4% per year since 1926. Last year’s results were right on par, with the blue chips posting a total return of 10.9% (as measured by the Standard & Poor’s 500 Index).
For mutual fund investors, the news was even better. Morningstar Inc. reports that 58% of domestic stock-picking funds beat the S&P 500, while the average return for all domestic equity entries was a shade under 12%. For most mutual fund investors, then, 2004 was a year in the plus column, a welcome follow-up to the surge of 2003.
The following were among the highlights:
Specialty funds paced the domestic market. As real estate values shot up and oil prices spurted, funds in those categories gained 31.88% and 28.37%, respectively.
Small-cap funds beat large-cap funds while value stocks topped growth stocks. Morningstar’s small-value category, for example, led the large-growth group 20.58% to 7.65%.
Investors who ventured offshore did much better than those who stayed at home. The more adventurous you were, the better. While international equity funds returned 17.64% overall, the world’s best results, 38.26%, were posted by those eyeing Latin America.
Bond funds lagged, but they still outperformed expectations. Many forecasts called for rising interest rates, which would have devalued bond funds. But rates stayed fairly stable and taxable bond funds returned 4.92%.
Overall, 2004 turned out to be a good, if not great, year, following the 31.63% gain posted by domestic stock funds in 2003. And experts believe there are reasons to maintain a bullish posture. “We expect to see stable to slightly lower unemployment, which would lead to growth in household income and an increase in consumer spending,” says Keith Hembre, chief economist at U.S. Bancorp Asset Management, in Minneapolis. “Business investment should continue to grow at a moderate pace. These positive factors are likely to offset high oil prices and more interest rate increases by the Federal Reserve.”
The question that remains, though, is just how much longer will the bull roam the markets. So where should you put your investment dollars in 2005? Here’s what you should consider when seeking out long-distance runners:
Stick with stocks.”I’ve been conservative after seeing how the market fell in 2000 through 2002. Now, I think there are more opportunities, so I’m a little bit less cautious,” says Kathy Williams, a financial planner in Oklahoma City,
Dr. Leon Bragg, a 56-year-old dental services specialist in Oklahoma City who heads the state’s Medicaid dental program, is one of Williams’ clients. “Investors such as Dr. Bragg can take a little risk, as long as they avoid extreme losses,” she says. “Considering his age, his good health, and his family history of longevity, he needs long-term growth in his portfolio. Therefore, his normal asset allocation is 85% in stocks and 15% in bonds.”
Bragg’s allocation to stocks has included domestic funds such as the Growth Fund of America (GFAFX) and foreign vehicles such as the Tweedy, Browne Global Value (TBGVX) fund. Nevertheless, his equities have been below the
