Many expected that actively managed funds would lead in 2014, but as FundX President Janet Brown wrote in her latest Forbes piece, that was yet another prediction that didn’t come true.
“As it turned out, very few actively managed funds were able to beat the S&P 500 in 2014,” Janet wrote. “And some investors now wonder if they’d be better off just buying a few index funds.”
Click here to read Janet’s Forbes post, Successful Investing Goes Beyond Index Funds.
There’s a lot to like about index funds, Janet explained. But with hundreds of different index funds on the market, it can be challenging for investors to determine which index funds to own.
“If you happened to buy into an S&P 500 index fund and a NASDAQ 100 index fund, you would have done very well in 2014,” Janet pointed out. “But if you happened to buy a small-cap index fund or an emerging markets index fund—both of which have outperformed the S&P 500 for the last 10 years—you would have had a tough year in 2014.”
Read Janet’s Forbes piece to find out which index funds and actively managed funds have been bringing in good returns in 2015.
The right allocation to stocks, bonds and cash can help us ride through difficult market environments and allow us to fund both our long-term investment goals and our near-term expenses.
A combination of stocks and bonds can help investors generate growth and manage volatility. Stocks and bonds work in different ways: stocks have the best long-term returns, but over the short term, they can be very volatile and can have steep declines. Bonds help buffer the volatility of stocks and can help us stay invested over the long term.
Cash is another important component of overall asset allocation, but it should not be considered a fixed income equivalent. Cash is how we cover our day-to-day expenses and it’s where we keep our emergency funds. We wouldn’t want to put our emergency money in stocks or bonds, because these investments can lose money, particularly over the short term.
Your asset allocation should be based on your future and current needs, and it should change as your needs change. But too often, investors change their allocations out of fear. We saw this after the 2008-2009 declines as investors fled stocks for the perceived safety of bonds. And we’ve seen this again in the last few years, as some investors replaced their fixed income allocation with cash, assuming that rising interest rates would hurt bonds. Continue reading “What Cash Can & Can’t Do” »