Market volatility can give even the most risk-tolerant investors a bad case of the willies, so it's worth remembering that stuffing money under a mattress carries risk, too: Thanks -- or no thanks, really -- to pesky inflation, a mattress account will lose value year in and year out, dragging your purchasing power down with it.
That said
Make no mistake: Volatility comes with investing like fleas come with a dog, so savvy types will want to take steps to cushion the fall when Mr. Market throws one of his periodic temper tantrums. Qualcomm (NASDAQ:QCOM) and eBay (NASDAQ:EBAY), for example, boast earnings-growth prospects of at least 20% over the next five years, and yet, over the last 12 months, both have suffered stock price declines. Yahoo! (NASDAQ:YHOO) and Starbucks (NASDAQ:SBUX) strike a similar price profile.
How to proceed? Well, for my money, a smart way to own racy growth vehicles like those is to offset them intelligently with more buttoned-down plays such as 3M (NYSE:MMM), Anheuser-Busch (NYSE:BUD), and Johnson & Johnson (NYSE:JNJ) -- three companies with price-to-earnings (P/E) ratios that clock in below the broader market.
Better yet, you could have the best of both worlds and own all the aforementioned stocks in the context of a carefully calibrated portfolio, one that's assembled by a talented team of money managers and sports a price tag of well under 1%. I'm talking about a world-class mutual fund, of course, one that includes each of the stocks I've called out above. Since I tapped this fund as a recommendation for the Fool's Champion Funds investing service, shareholders have been treated to a gain of more than 50% -- and far less volatility than they would experience with just a stocks-only portfolio.
Why funds?
I'd argue that even investors of the stock-jock persuasion should at least contemplate laying a foundation of funds before taking on the additional risk that comes with individual stocks. Doing so can help keep you in the game when the market hits the skids, which means that you'll be there for the all-but-inevitable rebound when it occurs.
Not just any fund will do, of course, which is why Champion Funds zeroes in on top-shelf picks that can help grow and protect your nest egg -- and let you get your beauty rest as you work toward financial independence. That's a winning combination, and so far, so good: Despite all the market's ups and downs, every one of our recommendations is in the black and, taken collectively, they're beating the market by more than 14 percentage points.
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This article was originally published on Mar. 27, 2007. It has been updated.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service and co-advises Motley Fool Green Light with his pal, Dayana Yochim. eBay, Yahoo!, and Starbucks are Stock Advisor picks. 3M and Anheuser-Busch are Motley Fool Inside Value recommendations. Johnson & Johnson is an Income Investor pick. At the time of publication, Shannon didn't own any of the securities mentioned above. You can check out the Fool's strict disclosure policy by clicking right here.
