- The Washington Times - Wednesday, July 2, 2003

After the spectacular ride stock mutual funds had in the second quarter, when they posted their best quarterly results in 3 years, investors said they were more upbeat but still tentative.

Both sentiments are easy to understand.

On the upside, fund tracker Lipper Inc. reported that equity funds on average recorded a positive return of 18.1 percent in the second quarter, the biggest quarterly return since the 21.6 percent they scored in the last three months of 1999.

But there was room for skepticism after investors saw other stock rallies fizzle during the bear market and after they waited for more than three years for the economy, corporate earnings and Wall Street to rebound. The past two weeks, in which profit-taking has pulled stocks lower, also give these investors reason for pause.

“I haven’t been looking at making any major moves yet. I have some question about the [stock] valuations in the market because we had such a bull market,” said Thomas Bartkoski of Chicago.

Before he makes any big decisions, whether it is to buy new funds or purchase additional shares of ones he already owns, Mr. Bartkoski said he wants to examine his holdings. He said he believes he is adequately diversified, having funds that focus on companies of all sizes and in firms based here and abroad, but he wants to be sure.

April Andres is intrigued by the market’s upward trek since mid-March. But Mrs. Andres, of Richmond, Texas, also is smarting from the bear market, having seen the portfolio she shares with her husband shrink, and she is painfully aware of the sluggish economy, having been laid off from her accounting job in March.

“I have been slowly putting money back into stock funds, rather than in bond funds and money-market funds,” Mrs. Andres said. “I haven’t jumped back in. … I am cautiously optimistic.”

Caution to Mrs. Andres means bumping up her stock holdings to 60 percent from 50 percent. More bear-friendly bond funds and money-market funds make up the rest.

For now, she is sticking to value-oriented funds, which concentrate on undervalued companies that typically pay dividends.

She is not ready to go back into the growth-style funds, which focus on more economically sensitive companies that don’t pay dividends, or technology funds that dominated her portfolio and ruled the late 1990s bull market.

“The market has been picking up a little bit. Nothing drastic, but at least it is showing a general upward trend. I don’t know if it will ever be like the good old days of the last bull market,” she said.

Planners say there is merit in being cautious, particularly if it means investors aren’t chasing after fund performance. After all, past performance, even if stellar, is a poor predictor of future returns.

Planners also note strategies that cautious fund investors should consider.

“We have recommended for some people who have that cautious feeling that dollar (cost) averaging might be a good idea,” said Diane Maloney, president of Beacon Financial Planning Services in Plainfield, Ill.

Dollar (cost) averaging means investing a fixed amount every month no matter what the direction of the market is. Such investments typically are made by automatic withdrawals from checking accounts or paychecks.

The idea behind dollar (cost) averaging is that over time, the market’s gains more than compensate for its declines, yielding a healthy return. It also is seen as a safeguard against investing or selling off big chunks of assets all at once and at the wrong time.


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