The best stocks to buy today funds when the economy is robust and growing are usually growth stock funds. In 2011 and beyond this scenario appears unlikely. Since stock (equity) funds belong in the average investor’s portfolio, what are the best stock funds if 2011 fails to produce good economic growth? Even the best growth funds rarely pay a significant dividend – that’s not the nature of growth funds. These funds focus on price appreciation or rapidly rising stock prices as an objective by investing in companies with higher than average prospects for growth in sales and earning or profits. The stocks they invest in plow their money back into the company instead of paying it out to investors in the form of dividends. Without a significant dividend as a cushion, growth funds generally experience greater share price fluctuation, which means greater risk.
If uncertainty remains high and the economy remains sluggish in 2011 and beyond, growth funds are not your safest bet. When it’s time to be defensive, it’s nice to own equity funds that have a good track record for paying dividend yields of 2%, 3% or more. A dividend of 3% might not sound like much but it does provide a cushion under stock prices. With today’s interest rates 3% looks rather attractive, and many major corporations have a surplus of cash available to increase dividends.
As a conservative play the best stock funds for 2011 to stay invested in equities and decrease the risk of big losses: equity-income or “value” funds that invest in major (large) dividend-paying companies. Don’t worry so much about the name of a fund because names can be misleading to the average investor. Instead start by looking for equity funds that have dividend income as a primary objective. Such a fund would fall under the general category of DOMESTIC (U.S.), GENERAL DIVERSIFIED equity funds.
They can be further classified as value funds, equity-income funds, or maybe DIVIDEND growth funds. The latter tend to invest in large companies with a history of paying stable and/or INCREASING dividends over the years. Make sure that the fund you pick invests in high quality major corporations. Some value funds invest in smaller less-stable companies that “appear” to be cheap, and these funds can be quite volatile (risky). Every fund gives investors a general description of its objectives and what kind of investments it intends to make. It’s often in the fund’s introduction or summary, so look before you leap!
In my opinion, the very best stock funds for 2011 and going forward would also be classified as NO-LOAD and INDEX equity funds. You can cut your cost of buying an equity fund by 5% by avoiding sales charges or “loads”, by simply buying no-load funds. You can save 1% to 2% on YEARLY fund expenses by going with INDEX funds that simply track a sector of the market instead of trying to outperform. Few funds outperform their benchmark (index) on a consistent basis and many under perform it. Why pay to take this added risk?
In summary, to avoid high risk and stay invested in the stock market in 2011 and into the future, here’s how to find the best stock funds. Get info from the major no-load fund companies like Vanguard, Fidelity, T Rowe Price, and Century Funds. Look under the category of EQUITY INDEX funds. Make sure that there are NO sales charges. Look for a DIVIDEND YIELD of 2% or higher, and make sure the fund tracks an index of large-company or large-cap (capitalization) stocks, like the S&P 500 Index.
