Buy wisely, sit tight and don't panic Consider 5 years as your time horizon

Mutual funds

September 13, 1998|By Bill Barnhart | Bill Barnhart,CHICAGO TRIBUNE

Margaret LeVan of Woodstock, Ill., has a fairly precise time horizon for a stock mutual fund investment she's planning: five years.

"I want something that is safe but has a higher return than a certificate of deposit," she said.

The mutual fund industry typically advises investors that five years is too short a time frame to expect reasonable equity

performance that can outlast the inevitable stock market downturn.

But five years is a much more common time frame for individual investors than conventional wisdom suggests. What's more, the spectacular track record of equities over the past five years -- better than 20 percent per year -- has convinced many investors that a half-decade is a sufficient period in which to score generous and safe investment returns.

LeVan has a long-term retirement program through her employer in a relatively conservative growth and income mutual fund. But she also wants to sock away some money to produce a return in five years, when she will need extra cash. The recent stock market plunge has diminished expectations and increased concerns about risk but by no means dashed confidence that stocks are better than bank accounts.

LeVan was attracted to the Weitz Hickory Fund's 54 percent one-year return and 29 percent annual return over the past five years with "lower-than-average risk," according to a Morningstar ranking.

But the same day LeVan called the fund's sponsor, Wallace R. Weitz & Co. in Omaha, Neb., the fund was closed to new investors.

Despite the wisdom of maintaining longer-term investment goals, LeVan's search for a five-year equities fund investment is reasonable.

"Five years is probably an adequate period, if you can live with the volatility," said David Klaskin, chief executive officer of Chicago-based Oak Ridge Investments. The problem over five years is not with stocks but with investors, he said.

Disappointments during a relatively short time horizon often prompt investors to make costly and unrewarding changes in their investment program. "The shorter the time period, the more likely you are to pull the trigger," Klaskin said. "People say they can accept volatility, but they can't."

Klaskin and Oak Ridge President John Peters plan to introduce a large-company fund, in part to provide an outlet for investors seeking an alternative to the Oak Ridge Growth Fund, whose small-cap strategy has been hammered in recent months. Nonetheless, Klaskin says, the secret is steadfastness.

If you can stick with a diversified equity fund and not panic, the odds are in your favor -- small-cap or large-cap, even over five years.

Mutual fund research by Ibbotson Associates, Morningstar and Charles Schwab provides other tips: Funds with above-average track records in their category over two years tend to continue beating the averages, but top-performing funds tend to fade; new small-company funds tend to outperform older small-company funds; out-of-favor funds, based on investor cash flow trends, tend to outperform hot funds.

Pub Date: 9/13/98

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