Word: mutuals
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...lucky timing, Fidelity Investments, the mutual-fund giant, last week rolled out a promotional and educational campaign starring Peter Lynch, its legendary fund manager. Lynch was troubled, he told TIME, that "in the first half of this year, the S&P 500 was up 15%, but [corporate] profits were down." He also expressed relief that the correction came now, rather than having the market drop to 7500 "after it's gone...
There was remarkably little evidence of panic among individual investors last week. One measure of that is the amount of money that flows in and out of equity mutual funds. In August, a month that included several gut-wrenching weeks, there was a net outflow of $5.4 billion, or well under 1% of the total invested in equity funds. Though this was the first such exodus since the recession and stock slump of 1990, the number is still quite modest when compared with the 4% that fled equity funds after the October 1987 correction. Last week investors pulled...
...quarters. Among the highest-yielding Dow stocks are Philip Morris (4.1%), J.P. Morgan (4.4%) and General Motors (3.5%). Other stocks to own might include those of consumer-products companies, a group that lost far less ground than the market this summer. You could also look for value-oriented stock mutual funds, such as Oakmark Fund (which has some of my money) or Mutual Shares (which has been carrying 20% in cash and thus was positioned to scoop up bargains as the market fell...
More conservative plays, but ones that still have an equity component, include convertible bond mutual funds, which hold high-yielding debt securities that can be turned into stock if the market rises far enough; or preferred stock, which carries secure, higher-than-normal yields and is relatively immune to stock market gyrations. If you really want to run for cover, a money-market account is the place. Long-term bonds can be a safe haven from stocks but carry their own risks. They represent a bet on stable or falling interest rates, a great hedge against recession...
...wonder that insurance giant AIG recently bought variable-annuity titan SunAmerica. For some reason, consumers are buying record numbers of these instruments, which are essentially tax-deferred mutual funds wrapped around life insurance. Annuities usually carry high fees and taxes. Our advice: stick to options like 401(k)s and IRAs...