For most average long-term investors in 2011 and beyond, the best investment funds will still be mutual funds – both stock funds and bond funds. But in putting together your best investment strategy your best bet is to also add a few funds of a different sort to your portfolio for greater diversification.
Over the long term a mix of about 50-50 in stocks and bonds has worked to give investors diversification, and mutual funds have been the best investment funds to keep life simple while investing in both asset classes. In 2011 and going forward the best investment strategy will not be quite so simple. The folks who loaded up on bond funds during the financial crisis to avoid the risk associated with diversified stock funds are having second thoughts. With the threat of higher interest rates and inflation investors have sold bond funds to buy stock funds. What are your best investment funds now?
View intermediate-term bond mutual funds and diversified stock funds as your primary holdings for the long term; but for 2011 and perhaps 2012 cut back your holdings in both. That said, what are the best investment funds for the money you have freed up? For safety put some money in money market mutual funds. If interest rates continue upward the interest they earn will go up as well, and the share price is traditionally fixed at $1. With the rest of your money broaden your diversification by adding funds that specialize in sectors or areas of the economy that can buck the trend if the stock market goes sour.
In looking for the best investment funds to add to your portfolio keep an open mind. What areas have done well in the past when the stock market crumbled, or when inflation or higher interest rates were a threat? Past examples include real estate, precious metals, basic materials like aluminum and copper, oil and other commodities. Some mutual fund companies offer funds called SPECIALTY funds that specialize in some of these areas. But to get a wide variety of investment funds to chose from in these and many more specialized areas, you’ll want to open a brokerage account.
Simply open an account with a major discount brokerage firm and you’ve got hundreds of the best investment funds available for adding diversification to your portfolio. These are called exchange traded funds, or ETFs. They trade like stocks and commission per trade costs about $10. You can invest in silver or gold, real estate or natural gas in the morning and sell in the afternoon if you have a change of heart. If you want to speculate or hedge in regard to long term interest rates, or even bet that the stock market will fall, these are the funds that make it easy to do.
For most people who do not want to speculate, the best investment funds to add for 2011 are simply those that give you easy access to diversifying into areas like oil stocks, real estate, foreign securities, precious metals, basic materials and other areas that don’t necessarily track the stock market. In times of high uncertainty broad diversification is the best investment strategy. Going forward, exchange traded funds are the simplest and best way to broaden your diversification. If interest rates continue to trend upward bond funds will be losers. If the economy goes sour the stock market will fall and take general diversified stock funds down with it. Meanwhile, some specialty funds will be winners.
Don’t give up on your traditional stock and bond mutual funds in 2011, just cut back. They’re still your best investment funds for the long term. Don’t sweat over finding the single best investment in sector or specialty funds – diversify into a variety of them. Your best investment strategy when in doubt is to diversify more… so you can worry less.