Principal Protected Mutual Funds

The ideal time to buy these is not after the market has crashed . . . rather, do so when the market has been screaming. Locking in a profit yet still having market upside should be the goal.

These were an easy sale after the crash. Consider how cycnical it is to sell the wrong product, just because it provides false comfort to nervous buyers:


Gee, this doesn’t look like a good deal at all . . .

Going into the next leg up (Q2 2005) would have been a better time for this sort of risk averse investment . . .

And no, this isn’t a case of 20/20 hindsight — I said this in October 2002 when these "products" starting becoming mpore prevalent.

Here’s an excerpt from the WSJ:

Money is leaking out of what are known as principal-protected mutual funds, as investors learn the perils of playing it safe.

These ultraconservative mutual funds guarantee to return at least an investor’s initial or principal investment, after fees, several years down the road. From August 2001 through May 2003, they attracted more than $7 billion as investors rattled by the bear market fell in love with the idea, according to data from fund-tracker Lipper Inc.

But now, these funds’ cautious investment style and steep fees have left their returns lagging far behind stock funds.

The average diversified U.S. stock fund gained 12% last year and 33% the year before, compared with gains of 2% and 5%, respectively, for the average principal-protected fund, according to Lipper. And as a group, these funds have been losing assets for 19 consecutive months — nearly $1.5 billion for last year, according to Boston fund consultant Financial Research Corp. As stocks have risen, the ranks of the funds’ critics have swelled.

Shocker . . .


‘Safer’ Mutual Funds Look Sorry
Ian Mcdonald
The Wall Street Journal, January 28, 2005; Page C1,,SB110686375437638485,00.html

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  1. p commented on Mar 6

    It is still far too early to say if these investments are inefficient.

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