Transcripts

"Of Mutual Interest,"-John Waggoner, Mutual Fund Columnist at "U.S.A. Today."

SUSIE GHARIB: In tonight's "Of Mutual Interest," where to be when the stock market eventually turns bullish. Here's John Waggoner, mutual fund columnist at "U.S.A. Today."

JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: Sooner or later, the economy will perk up, banks will stop collapsing and stocks will rise again. So what kind of stock fund does best at the end of a recession? I'll tell you - we don't know. If you want to profit from an economic recovery, invest in a widely diversified fund so that no matter what stocks rise first, you'll catch some of the rally. It may feel like a recession now, but it's not an official recession until the National Bureau of Economic Research business cycle dating committee says it's one. So far, the committee hasn't spoken. Nor has the economy had two consecutive quarters of falling gross domestic product, an unofficial way of defining a recession. Nevertheless, many economists are expecting a recession to begin this year. It may already have started, but we might have to wait months for the committee to decide. In the last recession, which ended in November 2001, every category of diversified U.S. stock funds was down 12 months later, according to Lipper. But small-cap value funds fell the least. In the recession before that, mid-cap growth funds fared the best a year later. And in the recession before that? Large company stock funds all fared about equally well. Speaking very broadly, growth funds are often the fastest out of the gate after a recession. But just as all unhappy families are different, so are all unhappy economies. You just don't know when our current economic malaise will end or what fund will do best when it does. So look for a broadly diversified index fund, such as one that tracks the entire stock market. Your fund will own at least some of the stocks that soar in a recovery and you won't run the risk of missing out entirely. I'm John Waggoner.