Stock Funds

Pat Carter is within weeks of retiring and is coming face-to-face with the financial struggle she will encounter for the rest of her life and the risks she inadvertently took that threw her into the predicament. In 2000, she was about eight years from retiring, and trying to set herself up for the future. But her good intentions backfired. With $2,000, she opened a Roth individual retirement account and followed a broker's suggestion - putting the full $2,000 into a high-risk, aggressive stock mutual fund.

You know it was a bad quarter for stock mutual funds when even Legg Mason's Bill Miller -- whose reputation for stock picking is legend -- ended somewhere near the bottom of the pack. Miller's Value Trust fund lost 19.7 percent in the first quarter, led by untimely bets on technology and telecommunications stocks, such as Sprint Nextel Corp., and Bear Stearns Cos., whose near-collapse and subsequent bailout by JPMorgan Chase & Co. sent markets reeling late in the quarter. It was the fund's worst first quarter since it was established 26 years ago. Miller's slump officially started in 2006, when his record 15-year streak of beating the S&P 500 index was snapped.

RALEIGH, N.C. -- Gold comes in a variety of flavors when it comes to investing. You can buy the metal itself - gold coins and gold bullion. You can buy shares of individual gold-mining companies or mutual funds that invest in a slew of mining businesses. Then there are ETFs, or exchange traded funds - you buy and sell them like stocks - that track the price of gold. Be aware, however, that investment experts are split about whether investing in gold in any shape or form is wise. Some counsel that gold has a place in a well-rounded, diversified investment portfolio, but that investments in it and other commodities should not exceed 5 percent of your total investments.

The mutual fund that boasted one of the best runs in the fourth quarter - far outpacing the negative average return of peers - had almost one-third of its holdings in financial stocks. That may come as a surprise, given the global credit crisis that gripped many financial firms and sent domestic markets on a topsy-turvy course for the year. But T. Rowe Price Group Inc.'s Emerging Europe & Mediterranean Fund invests overseas in places that were largely sheltered from that turmoil, including some financial firms.

You suggest in your book that a person in his 40s could invest 26 percent of a 401(k) in international stock mutual funds. In a column in November, you warned people about emerging market funds. Do you still feel that 26 percent in international stock funds is the right exposure? I have about 30 percent of my 401(k) in American Funds EuroPacific Growth. - M.A., via the Internet Investing about a quarter of a 401(k) in international funds makes sense. For a 40-year-old, financial planners might divide up 401(k)

Maybe plain-vanilla stock and bond mutual funds will do the job after all. Long-short funds - the newfangled mutual funds designed to give common investors a hedge fund experience and protection during downturns - recently went through one of their first major tests. And they flopped. In July and August, with investors concerned about subprime loans and a credit squeeze, the benchmark Standard & Poor's 500 stock index went down 9.4 percent. Long-short mutual funds - which are designed to hedge risk by betting on some stocks to rise and others to fall - went down 8.4 percent, according to Lipper Inc., a mutual fund tracking firm.

Watching the stock market rally that pushed the Dow Jones industrial average to a new high last week, it's hard to believe that August marked a time of profound financial turmoil in the housing sector, one of the nation's bedrock industries. For mutual fund investors, the third-quarter roller-coaster ride that ended on an upswing meant stock funds eked out an average 2 percent gain and bond funds advanced 1.4 percent on average from July through September, according to Lipper Inc. Funds betting on large, fast-growing companies rose 6.2 percent during the quarter, while funds investing in China shot up 29 percent.

Dividends are the traditional way that stable companies with significant profits and cash share their income with stockholders. Mutual funds loaded with dividend-paying stocks are more interesting to investors during periods when stock price appreciation seems less assured. These funds typically neither skyrocket nor crash, with their income helping to keep overall returns steady. "Dividend income used to be a snoozer back when everything was growth-oriented," said Tom Roseen, senior research analyst with Lipper Inc. in Denver.

Investors who bought into the telecommunications explosion are smiling: The sector continues to provide volatile yet superior stock results. Wireless technology continues to envelop the world, as consumers in mature and developing markets alike are becoming hooked on mobile data and entertainment at their fingertips. Consolidation has further helped to drive up telecommunications stock prices. The pending $27 billion buyout of Alltel Corp. by TPG Capital and Goldman Sachs Capital Partners is a prominent example.

Even amid all the market turmoil, 2007 is shaping up as a decent year for mutual fund investors. International stock funds are up about 8 percent, and U.S. stock funds are up more than 4 percent. The chief reason, say financial planners and investment officers, is that global worries about credit drying up have had the largest impact on areas such as bank shares and real estate -- leaving many stock, bond, and international funds to rise along with broad market indexes this year. As a result, many financial planners say frequent whipsaw days on Wall Street this month have not changed their usual recommendation to construct a diversified portfolio and stick with it. "We don't do anything defensively when the market's like this, even when clients call kind of panicked," said Cheryl Costa, principal adviser at Family Financial Architects in Natick, Mass.