The day that nearly every one of the hundreds of 30-something, whiz-kid mutual-fund managers feared has arrived: retirement and mutual fund statements for the second quarter are in the mail. Upon looking at mine, I notice that my hyper-conservative money market fund is on course to earn a whopping 2.17% for the year, roughly 1/3 of the real rate of inflation. While losing money relative to inflation is generally considered a loss, I consider those returns a great victory.
They are a victory because as I look down the list of available funds, and there are dozens that this to-remain-unnamed* fund family offers, I notice an interesting trend:
Growth & Income YTD: -10.62%
International Equity YTD: -18.53%
Large-Cap Value YTD: -15.71%
Large-Cap Value Index YTD: -13.69%
S&P 500 Index YTD: -12.03%
And you might think I'm cherry-picking the worst results, and I am, because these are the largest funds, made up of the largest stocks that the largest number of people invest in for their retirement. However, looking over the rest of the list I note that a whopping 3 funds delivered positive returns over the last 6 months and 2 of those were less than my paltry 2.17%. Only the Inflation-Linked Bond Fund, at 4.82%, has done better over the course of this year than cash-equivalents. I do not expect the results to be any different for the rest of the year, and maybe next year as well.
I may have received only 2%, but if today I move it into a stock fund**, I will receive 15-20% more of that fund than I would have had I put my money there in the first place like the whiz-kids recommend for someone my age. If second-half returns are similar, that gain will become 30% or more.
There's an old joke about two guys who come across a bear while they are camping. As the bear rears up and looks to charge them, the first guy starts to lace up his running shoes. The second guy, confused, says, "What are you doing? You can't outrun that bear."
"I don't have to," the first guy responds, "I only have to outrun you."
In times like these, victory is defined not by how fast you run, but by whether you avoid getting eaten by the bear.
* mostly because it doesn't matter. Since all similar funds generally invest in the same things, they are liable to have similar results. Your results may vary, though I doubt by much.
** Which I will do with each of my two "cash-only" retirement funds, at separate times, in the future. Stocks really are the only place one can invest this kind of money over the long term.