For five years, stock funds (equity funds) have been very good investments, and in 2014 and 2015 the right funds could still be good investments. It’s all a matter of where to invest the money in the future, because there are few good stock funds in a bad stock market.
Over the long term, stocks have returned about 10% per year (on average), and stock funds have been good investments for investors looking for where to invest for higher returns. This does not mean that you can just invest money in one and expect to earn 10% every year. Annual returns are heavily influenced by the general trend in the stock market.
While most investors follow the DOW (Dow Jones Industrial Average), most professional investors, such as fund managers, are evaluated on how well they perform versus how well they perform. the S&P 500 index. For most of these money managers, their job is to pick good investments and beat the S&P 500 (the stock market in general). Even good stock funds fail to do this consistently.
In the vast majority of cases, when an average investor asks a financial planner where to invest money for growth (higher returns), the recommendation is: invest in diversified domestic equity funds, the largest and most widespread category of funds. . Where are these mountains of cash invested? Answer: Mainly in the 500 largest and most well-known corporations in the United States… those that are included in the S&P 500.
In other words, even good stock funds are rarely good investments in a bad stock market. The vast majority of them are diversified across a wide range of industries or sectors of the economy. As the market goes, so go the average person’s stock funds. What can you expect if the market turns ugly and drops 50% in 2014 to 2015 like it did in 2000 to 2002 and again in 2007 to 2009? Diversified funds that take losses of 40% or less will look like pretty good investments. You can safely bet on one thing.
Even the really good stock funds (diversified funds that actually outperform the last five year averages) will lose money if we have a third big market crash in 2014 and 2015. The stock market makes the rules, and in 5 years it has uploaded more than 150%. What can you do to avoid big losses in a future recession? First, you can reduce your exposure to national diversified funds. So the question to ask is where to invest the money. Specifically, what are good stock fund investments when the market turns ugly?
There are always good investments for average investors and always good stock funds if you know how to find them. They don’t diversify widely, they focus on specific industries. No one really knows where to invest money when the sky is falling, but I’ll tell you what has worked in the past.
When the market has a bad week, look for stock funds that buck the trend. Also look for fund categories that have underperformed in the last year or two. For example, gold stock funds were losers in 2013. They could be good investments in 2014 and beyond and are worth watching. Over the past two decades, the following three fund categories have sometimes been good stock funds in a bad market: gold, natural resources, and real estate funds. They could once again be your answer to where to invest…as an alternative investment that bucks the trend.
Uncertain times call for greater diversification because no one really knows where to invest. Bull markets are always followed by bear markets, and good stock funds for a bull market are rarely good investments in a bear market. Don’t be left flat-footed as your stock gains evaporate. There are always good investments out there somewhere, and that will be true in 2014 and 2015 as well.