Trillions of dollars have been languishing on the sidelines in cash or cash equivalents like certificates of deposit as gun-shy investors fled to safety when the financial crisis threatened to wipe out their portfolios. Two years later, this money hasn't grown in any significant manner and with interest rates at record low levels it is unlikely CDs will return anything significant for some time to come.
Yet, if these sideliners had instead put their money into one of the largest mutual funds, their returns for the past eleven months would have ranged from a minimum of 4% to more than 12% and these weren't even the best performing funds, just the largest in terms of investment dollars. That means more people put their money in these funds than any others, according to Morningstar, the premier funds-rating agency.
As years go 2010 has been fairly quiet compared to 2008 and 2009. But then quiet is better than down. So as you prepare to review your 401(k) statement to see if you should keep or shift your choices, think about what matters.
You are never going to recover from the financial meltdown by sitting on the sidelines and the longer you wait to get back in, the farther behind you're going to be. You need to think long term, because that's what really matters and long term, the stock and bond markets are the only way you're going to grow your savings and investments.
If you need more convincing, take a look at how the 15 largest mutual funds performed in the first ten months of 2010. The total amount of investor assets in these funds totals more than one trillion dollars. The funds are ranked from largest to smallest of the largest fifteen.
1. The PIMCO Total Return Fund has $256 billion in assets under management. So far this year it has had a 9.6% return. This is a bond fund.
2. American Funds Growth Fund of America has $156 billion in assets and returned 5.49%. It invests in stocks and recently increased its foreign stock limit from 15% to 25%.
3. Vanguard Total Stock Market has $145 billion in assets and returned 8.8% so far this year. This is a stock index fund. Vanguard is cutting fees from 0.18% to 0.07%.
4. American Funds EuroPacific Growth A has $107 billion under management and has returned 5.1%.
5. Vanguard 500 Index has $97 billion under management and has returned 7.7%.
6. Vanguard Total Bond Market Index has $89 billion and has returned 7.3%
7. American Funds Capital World Growth & Income has $81 billion with a 4% return.
8. American Funds Capital Income Builder has $79 billion and returned 6%.
9. The Fidelity Contrafund has $71 billion in assets and has returned 11%
10. American Funds Income Fund of America has $67 billion and returned 8%.
11. American Funds Investment Company of America with $60 billion returned 4.6%.
12. Franklin Income A has $56 billion with a return of 9.6%.
13. Vanguard Emerging Markets Stock Index has $57 billion and returned 12.6%.
14. Vanguard Wellington has $52 billion in assets and a 6.5% return.
15. American Funds American Balanced has $49 billion and a 9.1% return.
Any one of these funds did better than money in a CD or money market. And the returns for these funds we somewhere in the middle which means many mutual funds did a lot better.
