Ever find yourself awake at 3 a.m., watching television in an attempt to fall back asleep? If so, you're familiar with "infomercials." One of my favorite such programs was the one showcasing a rotisserie chicken oven with which aspiring chefs were urged to "set it and forget it." There was something appealing about putting a piece of meat into a small oven and returning hours later to find it fully cooked and ready to eat. Not surprisingly, people like to reap rewards without exerting a lot of effort.
The same holds true for investing. While there are some day traders who get a rush from the minute-by-minute rise and fall of the market, Foolish investors are long-term thinkers. They prefer a buy-and-hold strategy rather than constant trading based on the latest hot stock tip. And as CNBC.com recently highlighted, investors are increasingly putting the "set it and forget it" mindset into practice when it comes to their portfolios.
What's different this time
Apparently, during this current market rally, investors have been favoring mutual funds over individual stocks. Market experts have theorized that although average investors are participating in the current rally, they are still somewhat cautious. Memories of the bear market of 2000-2002 are still fresh in everyone's minds, and fears of a repeat performance still linger. Investors are now viewing mutual funds as a way to diversify risk and have shoveled hundreds of millions of dollars into funds rather than individual stock positions.
Also, not surprisingly, investors are loading up on foreign mutual funds. In recent months, inflows into international funds have outstripped domestic fund flows by an almost 2-to-1 margin. As foreign stocks such as Mexican cement maker Cemex (NYSE:CX), Indian automaker Tata Motors (NYSE:TTM), and Swedish telecom company Ericsson (NASDAQ:ERIC) have rallied in recent years, investors have responded by upping their allocation to funds that invest abroad.
Behind the data
What all of this tells me is that although investors can learn from past mistakes, they also have very short memories. On the one hand, I find news that investors are favoring funds over stocks encouraging. I think this makes sense for most individual investors. Everyone thinks they have the edge when it comes to picking which stocks will outperform in the next few months or years. But even the Wall Street professionals have trouble getting their picks right all the time, and they do this for a living. They have resources and information available to them that most of us can only dream of. So why do so many of us still think we can outguess the professionals?
Save yourself some time, money, and worry, and don't try to go it alone in the investment game. Instead of trying to pick stocks on your own, hire someone with the know-how to do it for you. Mutual funds can be your best friend if you can find some of the decent funds out there with a long-tenured management team, consistent investment process, and positive performance track record.
However, the news that investors are piling into international mutual funds with such abandon is less reassuring. Long-term investors should always have at least some international exposure. But those people who are increasing their foreign holdings purely in response to the incredible returns this area has experienced lately are the ones that have not learned their lesson from the bear market. Although prices in some regions of the globe are still reasonable, others are looking downright lofty. Some of these prices will soon have nowhere to go but down, especially if the U.S. hits a rough patch that spills over into international markets. Don't chase returns -- it's that simple.
Portfolio on auto-pilot
So if you are like the studio audience in that rotisserie oven infomercial and the concept of "set it and forget it" is appealing, mutual funds may be ideal for you. Pick your funds, and let your managers worry about the rest. Right now, a lot of investors are following just that strategy -- and resting more easily at night. Take a cue from these folks and cozy up to mutual funds. Odds are you'll get more benefit from owning high-quality funds than you'll ever get out of that rotisserie oven.
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- The Perfect Mutual Fund Portfolio
- The Case for Mutual Funds
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Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies mentioned herein. Cemex is a Global Gains and Stock Advisor recommendation. The Fool has a disclosure policy.
