Is Your Portfolio Thriving?

Stock funds keep soaring, but the bond market is a bummer

What if 2007's first half ended rightnow? Stock-fund investors would be all smiles. Even with a good drubbing in June, most domestic equity mutual funds are posting positive gains for 2007 (through June 11). The average U.S. stock fund delivered an 8.06% total return (appreciation plus reinvestment of dividends and capital gains before taxes), vs. 7.28% for the Standard & Poor's 500-stock index.

International funds are doing even better. The typical diversified foreign portfolio has a 9.18% return. And funds that focus on the emerging markets, especially Latin America, are leading the way.

But investors in fixed-income funds have not fared well. Signs of inflation have spooked the bond market, with long-term bond funds losing the most ground in the past month. Most municipal bond funds—short or long, national or single-state—are also down for the year.

Overall, the typical taxable bond fund is up a mere 1.16% in 2007, while the Lehman Brothers Aggregate Bond index gained 0.31%. So much for finding safety in the fixed-income market. At this rate, bond portfolios might be posting big losses by yearend.

By Lauren Young

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