Beware Stock funds that aren’t.
Posted on | July 3, 2009 |
When times turn tough in the stock market and we’ve seen the kinds of portfolio pummeling losses common at the end of 2008 and beginning of 2009, it’s normal to want to see how your funds held up against their peers and perhaps make adjustments.
The danger this time around is that you may not be comparing the same kind of funds.
Take for example the Reynolds Blue Chip Growth fund (RBCGX). In 2008, it only fell 5%, while the S&P 500 lost 32%. Seems like a slam dunk for being a better choice than an S&P index fund, right? Not so fast.
The reason the Reynolds Blue Chip Growth fund only lost 5% that year is because it had 89% of it’s assets in cash!
Some of you may be wondering, “So what?” since it performed better. But if performance is all that matters, you may as well start chasing individual stocks. What good is a blue chip growth fund if it invests the bulk of its holdings in cash?
Most investors pick and choose stock funds based on the type and style of that fund. From there, they chose where it fits into their overall stock portfolio. What if you thought you had a nice mix of 70% stocks and 30% bonds with retirement 30 years away. Only while the rest of the stock market is booming, you’re lagging behind getting little more than a fixed income return because the fund’s manager decided he knew better and was going to abandon the intent of the fund?
These guys ought to ousted at the next shareholder meeting!
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