The Best Mutual Funds Most People Overlook

 

Many people just want to own the best mutual funds they can find. They want the best stock fund and the best bond fund so they can relax and everything will be all right. Just in case the economy and markets get worse in the future, you might want to dig a little deeper.

The best bond fund for most people most of the time is of the low-cost intermediate variety… not too risky with decent dividends. The best stock fund would also be low-cost, and of the general diversified kind. If you just own one.

When inflation and/or a sluggish economy become a major issue, even the best mutual funds in the above popular categories are vulnerable. So, let’s look a little deeper into securities that could protect your assets and make you profits in bad times. The good news is that you don’t need to dig too far into specifics and pick your own individual securities like stocks or bonds. Just look for mutual funds that do that for you.

Inflation-protected securities are debt obligations or bonds, and are issued by the U.S. Treasury and government agencies. These securities automatically adjust their principal and interest payments in response to changes in the rate of inflation. Conventional fixed-interest-rate bonds do not; and inflation can erode the value of even the best bond fund that invests in conventional bonds.

On the equity side, most stocks are vulnerable to a slowing economy and/or higher inflation as well. Some stocks in special sectors can buck the trend. These are the areas that are often overlooked by the average investor.

Real estate and real estate stocks were on cruise control heading into the recession of 2008. Then they got crushed, at least in part because real estate became overvalued in a low-interest-rate, low inflation environment. Over the long term the real estate sector has traditionally been a steady performer. Don’t overlook it when prices are low.

In the past energy and natural resources stocks have benefited when inflation was a factor in a sluggish economy. Stagflation could happen again and send prices in this sector to the upside.

Basic materials and precious metals don’t always march to the same beat as the stock market in general, even though they have in recent times. Inflation, uncertainty and a lack of other attractive investment options can send aluminum, copper, gold and silver prices higher. Stock prices in this sector follow suite.

Never overlook foreign securities. They have become a major investment option for even the new investor. As they say, there’s always an investment opportunity somewhere… in some country or some specialty stock sector.

The best mutual funds when things get dicey are often the ones that specialize in the above areas many investors overlook. Tomorrow’s best bond fund could be one that specializes in inflation-protected securities. The best stock fund could be one that specializes in real estate, energy, basic materials, precious metals or foreign securities.

Broaden your horizons when uncertainty has others throwing in the towel in defeat. You will never know for certain where the next opportunities lie, so diversify into the often overlooked areas. In this way you can strengthen your defense and your offense as well. If you have other ideas, I’d like to here from you. I’m always looking for the best investments, too.

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