October 4, 1997 in Nation/World

Quit Fretting Over Relative Mutual Fund Performance

Associated Press

If you are looking for ways to cut down on stress in your financial life, there’s one simple step you can take right away.

Drastically reduce the time you spend worrying about any mutual fund’s relative performance - that is, whether the results it achieves are better or worse than those of a stock market index such as Standard & Poor’s 500-stock composite.

To be sure, life in the world of mutual funds is much duller without index comparisons. They provide one of the main standards by which managers are judged, and fuel many a lively debate over the pros and cons of this or that style of money management.

But real-world experience prompts a couple of other conclusions about the practice of comparing managed funds investing in the U.S. market with the S&P; 500. In the recent past, the differences have often been surprisingly minor, and they don’t seem to tell us anything very useful about the future.

Much has been made about how almost all actively managed stock funds have failed to keep pace lately with the S&P; composite, and with index funds set up to duplicate the performance of the 500.

Indeed, for 1997 through mid-September, a recent tabulation by Lipper Analytical Services Inc. showed the Vanguard Index Trust 500 portfolio to be the top gainer among the 10 largest long-term mutual funds in the business.

This “Top 10” of funds collectively holds better than $320 billion in assets, or about 15 percent of all the money invested in domestic stock funds.

For all the attention it has received, the $43.93 billion Vanguard Index fund’s 29.5 percent year-to-date return didn’t beat any of the others in the top five by much. Fidelity Magellan, the biggest of all funds with $60.10 billion, showed an investment return of 26.9 percent; the American Funds’ Investment Company of America and Washington Mutual Investors were each up 27.6 percent, and the Fidelity Growth & Income Fund gained 25.1 percent.

So it mattered much more WHETHER you had money invested in any of those funds, or another one like them, than it did which one you picked.

© Copyright 1997 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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