How Much Does Average 40 Year Old Have In 401K The Best Mutual Funds Vs. Best Investment Strategy for 2014 and Beyond

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The Best Mutual Funds Vs. Best Investment Strategy for 2014 and Beyond

Millions of Americans own mutual funds and see them as their best investment options. Consider this question: Would you rather have the best funds or have the best investment strategy to manage your funds in 2014 and beyond? With history as a guide, I offer here an opinion, as well as a plan you might want to consider.

In a 10-year period (from 2000 to 2009) investors experienced two bear (down) markets where stocks lost 50% or more of their value while bonds did well. Both times stocks recovered and in 2014 they were back to record highs. Bonds were the best investment choices and the funds investing in them were the best funds in both bear markets. Even the best funds in the diversified equity department left little to encourage their investors in that 10-year period. The best investment strategy since early 2009: Invest heavily in diversified stock funds. Who could have known that they would be the best investment options available to the average everyday person?

The truth is, NO ONE knew, and in 2014 it would be very risky to assume that this was still the best investment strategy. The last two major bull (bull) markets before this current one (2009 to 2014) were followed by previous bear (bear) markets. In all cases, even the best funds in the diversified equity space suffered big losses, and often the best funds in a rising stock market are the worst to hold in a falling market. come down

The previous bull market lasted about 5 years, and at the beginning of 2014 the last one was 5 years old. Maybe it’s time to start looking for the best investment strategy for three different reasons. First, the bull market in stocks is 5 years old and stocks are not selling cheap. Second, even the best stock funds will be losers in a bad market. Third, with rising interest rates, bond funds are no longer relatively safe or reliable. For 30 years (until recently) they were the best funds for the average investor and were among the best investment options out there. Problem: If interest rates continue to rise, bond funds will lose money. This is how bond funds work.

Sometimes the best investment strategy is to be aggressive in stocks, if you feel like it. For most of us with long-term goals, the risk involved in this strategy far outweighs the prospect of higher returns. After all, if you take a 50% loss in a bad market, you need to make 100% (double your money) just to cover your losses. In the area of ​​bond funds, the vast majority of conservative investors still believe that they are the best funds and that the best investment strategy is to hold and everything will be fine.

If history tells us anything, it makes two things clear in the world of investing. One: You will never find the best investment or the best funds consistently. And two: the best investment strategy is to never put yourself in a position where you are open to large losses that are difficult to overcome. So it’s time to make a plan and come up with the best strategy in case stock funds and/or bond funds stumble in 2014 and beyond.

Virtually all mutual fund families offer a safe investment option called a money market fund. Reallocate your portfolio so that you invest equally in money market, stock and bond funds. Then set it up so that an equal amount of money flows from the money market fund to the other two each month. The monthly amount should be such that in two or three years the money market fund is reduced to almost nothing. Example: $90,000 portfolio, starting with $30,000 in each fund and $1,000 flowing in monthly from the money market fund…$500 in the stock fund and $500 in the bond fund. In about 30 months, the money market fund will run out.

Even if you don’t have the best funds, this might be the best investment strategy for the middle-of-the-road investor who ultimately wants to invest roughly half in stocks and half in bonds. You will be less exposed to stocks and bonds over the next two years; therefore, your potential for large losses is reduced should the markets turn ugly. If stocks and/or bonds fall, you’ll pick up more and more stocks as the fund prices fall. This is called dollar cost averaging and is a time-tested investment strategy. If the fund prices do not fall during this time period, you will get a respectable return, with peace of mind because you have reduced your level of risk. At this point consider going through the same process again.

Remember that bull markets are always followed by bear markets sooner or later. Bear markets tend to be shorter in duration, but they can be brutal. Don’t worry too much about finding the best funds for 2014 and beyond. Focus on having the best investment strategy. That way, you can stay invested without fear of big losses in stocks or bonds if things turn sour.

In the best funds vs. best investment strategy for 2014 and beyond debate, I suggest you focus on the strategy. Unfortunately, most investors ignore the investment strategy. This is why most average investors have not done well over the past twelve years.

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