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THE NEW YEAR

New Year's bring new markets



Thank heavens for new year's. With the slate brushed clean again, there's no greater way for investors to start the year than with some past perspectives and future hopes.

It sure would be great if mutual fund investing were an exact science--but it's not. It would also be pretty nifty if ---at the beginning of every year---some wise soul would publish a list of all the stock funds destined to positively reward their investors during the coming 12 months.But that's an eggnog fantasy, too.

The best any of us can do is hope we've learned something from the past and then apply that knowledge to our future investing. Here's a look at a three investor lessons we might be wise to remember in 2002:

  • Markets change. For the new and nearly new investor, who believed that the bull market of the 1990s had no where to go but up, the lessons of the past couple of years may have been harsh-- but then reality often is.

    Look at any chart showing the performance of equities year-after-year, and you'll see that that long-term trend line comes with plenty of dips and dives. Seasoned investors have known that only too well.

  • Markets change. It's funny how quickly we can forget the past, and, which fund types have provided shareholders with the most---and least-- rewards. To set that record straight going forward, here's a rear-view mirror look at how various fund categories performed in the recent past: At year-end 1995, the average stock fund was up 25.05 percent; health/biotechnology funds were that year's top performers, up 47.17 percent; and Latin American funds, the worst, down 20.56 percent, according to Lipper. In 1996, the average equity fund was up 17.72 percent. The top performing fund category that year was natural resources funds, up on-average 32.39 percent. The worst performing, Japanese Funds, down 11.98 percent. Year-end 1997, the average equity fund was up 17.52 percent; financial services funds were the top-performing fund category, up 45.23; the worst, gold oriented funds, down 42.33 percent. In 1998, the average return for stock funds was 11.19 percent. Science & technology funds were that year's big winners--up on average 50.58 percent, and Latin American funds, the worst---off 38.21 percent. At year-end 1999, stock funds returned on average of 33.47 percent to their shareholders. For a second year in a row, science & technology funds were the big winners--up on average an unprecedented 134.77 percent. The worst performers were specialty diversified funds, down on average 6.77 percent. Last year, in 2000, the average stock fund was down 4.51 percent; health/biotech funds lead the way, up on average 54.98 percent; and telecommunications and Japanese funds off the most, both down over 35 percent. And, while this year's numbers aren't official yet, in mid-December of 2001, the average stock fund was down 15.72 percent; gold funds have turned in the top performance so far-- up on average 16.35 percent; and telecommunications funds were off the most, down 40.46 percent.

  • Markets change. Because the markets are ever-changing, it's close to impossible to pick next year's winning fund category. And even tougher to pick the top-performing fund. (Who among you, for instance, where shareholders in this year's top fund, the Matthews Asian:Korean fund?) For that reason, building a portfolio that includes a blend of money market, fixed income and equity funds is a simple, and usually smart way to invest your mutual fund dollars. Then, over your investing life, if that mutual fund portfolio returns an average of 10-12 percent per year, consider yourself fortunate. At that rate, money doubles about every six to seven years which for most investors, is moola-music to their ears.

    Here's wishing each of you a happy, healthy and prosperous 2002!

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    Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.


    To read more articles, please visit the column archive.




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