The Second Rule of Successful Mutual Fund Investing:
FOCUS ON EQUITY FUNDS
If you learn anything from a study of the history of the markets, it should be this: over time, stocks outperform all other assets. That’s why you should put the bulk of your investment assets into stocks or stock mutual funds. Sure, there are risks to investing in stocks, but mutual funds inherently address many of those risk factors. Equity funds own dozens or hundreds of stocks, so they automatically protect you from the risks that arise from overloading in a single stock.
Stock mutual funds should be an essential part of every investor’s portfolio. Although there are times when it is appropriate to add bonds or other asset classes into the mix, stocks will almost always make up the dominant portion of most investors’ accounts. No other asset class — precious metals, real estate, bonds, commodities — can match the long-term returns offered by the stock market.
The key here is the phrase “long-term returns,” which we define as five years or longer. Even people who are retiring at age 65 need to be aware of the need for their portfolio to grow and support them for a decade or two (or even longer!).
The biggest risk of avoiding equities in your investing accounts is that you will likely lose purchasing power because of inflation. When the time comes to begin harvesting your investing gains, you’ll find that your money won’t go quite as far as you hoped. Investing in the stock market is the only way that average individual investors can keep pace with inflation and grow their nest egg.
Next blog will cover rule #3: “Invest in your funds regularly, through all market ups and downs.”
You can learn more in the How to Use the Mutual Fund Informer Guide or in the educational articles included in each issue of the Mutual Fund Informer, a new monthly mutual fund newsletter publication from ICLUBcentral that presents profiles of high-quality mutual funds with superior long-term track records. Get profiles of high-quality mutual funds at lowest subscriber rate plus sample a free issue now.