Here we consider the top mutual funds for putting together your best investment strategy for 2014 and 2015. Investment strategy will be crucial going forward, because these are unusual times. Which will be the top funds and which ones should you avoid?
What’s so unusual and why is it so important to pick the top mutual funds in putting together your best investment strategy? People have short memories. For example, interest rates are now abnormally low and have been falling for over 30 years. What happens if rates go back up, as many experts forecast? Avoid long term bond funds, because they will get clobbered. The top mutual funds in the bond department will be the intermediate-term variety that invest in corporate, not government bonds. That way you’ll earn a respectable dividend yield, with less interest rate risk.
Your best investment strategy for 2014 and beyond in the stock category is to lighten up on diversified stock funds, and avoid aggressive growth funds. What’s so unusual here? U.S. stocks have advanced over 150% over the past 5 years… while unemployment is still high in a lackluster economy where corporate sales have not kept up with corporate profits. The top mutual funds when the tide turns could be those that don’t necessarily follow the crowd. Your best investment could be funds that specialize in energy stocks (oil, natural resources), gold stocks, and foreign stocks.
Diversified stock funds are by far the most widely held, and they invest in domestic (U.S.) stocks. If the U.S. stock market tumbles, even the best mutual funds in that category get hit. Your best investment strategy for growth? Go outside of the box and diversify both abroad (foreign or international funds) and in specialized sectors like gold, natural resources and energy. Many U.S. fund companies offer these, and they are often the best investment options in unusual times.
What if the American stock market unravels in 2014 or 2015? If you are willing to go against the tide and be proactive, the top funds and best investment options for 2014 and beyond are not actually mutual funds in the conventional sense. They are called ETFs (exchange traded funds) and they trade as stocks. Some of them, like stock symbol SDS, are a bet that our stock market will fall. They also offer financial leverage of 2 or 3 to 1. Adding these funds to your investment portfolio can be the best investment strategy for offsetting potential losses in your other stock funds. They can quickly and easily be bought or sold on any business day, through a discount broker.
I made the statements earlier that these are unusual times, and people have short memories. This brings me to the top mutual funds for safety: money market funds. In recent years they’ve paid next to nothing – like money in the bank. In 2007 they paid about 5%. In another unusual period of time, 1981, they paid as much as 20%! That’s how much rates have fallen. These funds do not fluctuate in value, and the dividends paid (interest) follows interest rate trends. The best investment strategy for 2014 includes owning money market funds, as a cash reserve available to take advantage of future opportunities.
You’ll never find the top mutual funds within a specific category (like diversified U.S. stock funds) on a consistent basis. Focus instead on being invested in the top mutual funds in terms of broad categories like: long-term bond funds vs. intermediate… and foreign stock vs. diversified U.S. stock funds. Your best investment strategy for 2014, 2015 and beyond is to broaden your horizons and diversify more than usual. Unusual times call for unusual measures.