by Lawrence Meyers | March 25, 2014 8:56 am
They call it the “wall of worry” for a reason. Stocks just sometimes seem to climb and climb in the face of the worst news. The economic recovery is pretty abysmal, and more people have left the workforce than at any other time in modern history.
Yet stocks keep going up. That movement has made a lot of investors not just nervous, but terrified of a crash or major correction. Fortunately, there are funds to buy that allow you to invest money in very conservative fashion, in case of a crash.
If you think a crash is coming, what makes these good funds to buy? You can throw all your money in these funds and basically fight off inflation while engaging in a capital preservation strategy. Or you can just deploy some of your money into these selections as an ultra-conservative allocation of the overall portfolio.
Here are the top three funds to buy if you’re worried about a crash or correction.
One of my favorite funds to buy is FPA New Income (FPNIX). There’s a reason I’ve chosen this very specific mutual fund, and that’s because the man behind the FPA Funds is a genius. I mean, we’re talking world-class fund manager.
Robert Rodriguez manages the fund, and his all-too-infrequent commentaries are both prescient and insightful. He believes we are in for big trouble in the coming years and has positioned his New Income portfolio very conservatively. The FPA funds also publish extremely detailed policy statements about what they invest in, their philosophy for each fund, their fund’s goals, their selection process, and portfolio construction.
Even if you don’t invest in FPA funds, you must read their literature. You have to love a fund that says quite clearly, “We do not like to lose money! … Caution and preservation of capital have been the two guiding principles of the past five years.” Have they missed out on this big bull market? Sure, but that’s not the point of the fund.
More importantly, FPNIX has outperformed its benchmark for years, making it one of the top funds to buy. Expenses for FPNIX run 0.57%, or $57 per $10,000 invested.
Next on our list of funds to buy is SPDR DB International Government Inflation-Protected Bond ETF (WIP).
This ETF takes on a strategy of investing in a swath of government bonds from around the world. It gingerly allocates its top ten holdings across only 27% of total assets. These inflation-protected bonds mean you won’t have to worry about inflation eating away at your returns, and you can still getting the benefit of relatively safe bonds.
The fund yields 2.34% and has an expense ratio of 0.5%.
The last of our funds to buy is iShares Conservative Allocation (AOK), whose name pretty much tells you what you need to know.
The AOK is actually an ETF of funds, which takes a conservative allocation (hence the name) of several other iShares funds. Its top 10 holdings basically makes up the entire fund. The focus is on bonds, with about two-thirds of this ETF consisting of investments across the entire bond market — everything from treasuries to high-yield corporate bonds. AOK tops off the rest of its portfolio with stocks.
The result is a beta of 0.44, meaning the ETF is only 44% as volatile as the market. Meanwhile, it has delivered an alpha of 1.98, meaning it has outperformed its benchmark index by 1.98%. And when you’re looking for conservative funds to buy, it’s tough to beat numbers like that.
Expenses for AOK run 0.29%, making it the cheapest of our funds to buy.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.
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