Scared of Stocks? Try These Funds. 'Allocation' funds, by blending equities with other, less volatile investments, offer an alternative for anxious investors
The stock market's powerful rally over the past year has gone a long way toward reducing the losses that many mutual-fund investors suffered in late 2007 and 2008.</br></br>But the rebound--with the Standard & Poor's 500-stock index up 74% from its March 9, 2009, low--has done nothing for one group of investors: those who bailed out of stocks and have remained on the sidelines. Some of these investors have poured large sums into bond funds, even though those holdings may take a beating whenever interest rates rise from today's unusually low levels, possibly later this year. Some forecasters, meanwhile, believe that stocks may finish 2010 up as much as 10%.</br></br>So, for investors who want to step back into stocks but are still anxious, here's a modest suggestion: You don't have to take your stock exposure straight up. You can dilute it by buying an allocation fund that spreads its assets across many market sectors, from stocks and bonds to money-market instruments and convertible securities.</br></br>Such funds typically have less dramatic swings than pure stock vehicles. And "you will never be in a situation where everyone did well except you because you were in the wrong market niche,'' says Ned Notzon, who oversees allocation strategies at T. Rowe Price Group Inc.</br></br>The most cautious of these offerings, classified as conservative allocation funds by Morningstar Inc., may hold as little as 20% in stocks--and that number doesn't usually change much over time.