According to "Forbes," in its 9/29/03 issue, "Money Manager," pp. 105-106, Warren Buffett also has been recently leery of bond holdings, having sold off nearly all his long bonds in the first part of 2003. Yet the article points out as well that at least one fixed-income manager with a good record, Van R. Hoisington, based in Austin, thinks the argument for deflation in the U.S. is more convincing. Were he to be correct, bonds here could do quite well but our real estate and stocks rather badly.
I am not at all skilled as a market timer and so do not feel comfortable forecasting the directions for bonds, equities, real estate, and so on. If you agree, however, that bond funds are currently too risky, or you simply have been safely parking reserves in money market funds, the question arises: where shall excess dollars be put now?
Some like REITs (real estate investment trusts), others convertibles, certificates of deposit, or trust-backed corporates. Each has advantages and disadvantages to be considered. Our main quarrel with REITs at this point, for instance, though they have good yields, is that many have already had a big run-up and are not cheap.
Instead, as was true last year, I now like five actively managed well diversified no-load stock funds with excellent long-term records.
Had you invested a year ago in the five funds recommended here then, (See "Show Me the Money!"), you'd doubtless have done better than with an investment in the Standard and Poors 500 Index. (Per the "Forbes" 9/15/03 issue, for 8/1/02 through 7/31/03, our five mutual fund recommendations averaged a 16.0% total return vs. 10.5% for the Vanguard 500 Index Investor Fund, though with wide performance variations: Heartland Value rose about 45%; Clipper Fund went up only about 3% in that period.)