Stocks, Banking, Investing, Mutual Funds
Nervous investors can find some solace in history. The stock market has responded to past wars by nosediving at first, but has always bounced back to regain lost profits and then some. According to a Standard and Poor's study, the S&P 500 fell almost 17 percent in the five months after the attack on Pearl Harbor, but by the end of the war in 1945, the index had advanced 62 percent. The index dropped 5.4 percent the day after North Korea invaded South Korea in 1950, but when the war ended in 1953, it was almost 30 percent higher than on the day of the invasion. The S&P also dipped 13.5 percent in the three months after Iraq invaded Kuwait, but it finished 10.2 percent higher a year later. When the stock market reopened six days after the Sept. 11 World Trade Center disaster, the S&P 500 fell nearly 5 percent, but it recovered most of the losses by October.
In times of turmoil, say the study's authors, a buy-and-hold strategy is particularly smart. Making investment decisions based on short-term market gains or losses could lead to wrong guesses, says the study.
Bewildered investors have another way of sorting through the thousands of mutual funds available. Lipper, which provides fund data and analysis to the financial industry, now rates funds for individual investors by consistency of returns and ability to avoid losses. Funds that rank in the top 20 percent are classified as Lipper Leaders. You'll find the list of funds, which the firm updates monthly, at www.lipperleaders.com .
Interest rates on checking accounts are inching down, while the amount of money you'll need to keep in the bank to get this meager sum is creeping up, according to a survey by Bankrate.com. Interest rates on checking accounts now average 0.97 percent, down from 1.17 percent six months ago. The average minimum balance required to earn interest has increased to $695.10, up 1.5 percent since last spring. To avoid fees, which have risen to an average of $10.85 a month, you'll need to park an average of $2,434.50 in your account. That minimum has risen an average of 5.6 percent annually since 1998.
Free checking accounts haven't disappeared altogether. Bankrate found 96 such dealsmostly at small and regional banksamong the more than 1,200 accounts it studied at 350 institutions. A free account carries no monthly or per-check fees at any balance.
Watch out for "callable" CDs, which can be terminated by the issuing bank after a period of time, warns the North American Securities Administrators Association. These CDs often have higher yields than traditional certificates, but generally won't mature for up to 30 years, unless they're called in by the bank. If you cash them in early, you could pay up to 25 percent of the principal as a penalty.
If you're considering any CD, use a checklist at the association's Web site (www.nasaa.org ) to make sure you understand when it matures, what penalties and fees you'll pay if you cash it in early, and whether the interest rate is fixed or variable. You can also get more information about purchasing various kinds of CDs from the Securities and Exchange Commission at www.sec.gov/investor/pubs/certific.htm.
Does a mutual fund's performance give a good hint of future returns? It depends on the type of fund. That's the conclusion of a study of returns for more than 5,000 funds from June 1986 through June 2001. As the table shows, top-performing funds that hold bonds and international stocks typically maintained their performance, but funds holding US equities did not. "Top performers" were defined as funds in the top 10 percent of their class.
Yvonne Wollenberg. Financial Beat. Medical Economics Dec. 3, 2001;78:13.