As the Dow hits another fresh set of zeroes, savvy investors face a dilemma: Is now the time to plow fresh money into the market, or should they keep their powder dry in anticipation of an all but inevitable pullback? After all, that could create the kind of buying opportunity that accelerates the path to retirement bliss.
A zero-sum game?
As problems go, that's a good one to have, particularly resolving that dilemma doesn't require an either/or decision. Even during overheated markets, there are bargains to be had, and right now Wal-Mart
The best laid plans
Alas, sometimes stocks that look like bargains have plenty of room to fall further, with market-wide and stock-specific trajectories persisting well past the point at which you'd expect the "smart money" to arbitrage away valuation discrepancies. Thing is, while the market may be efficient in the long run, in the short term it's subject to all manner of to-ing and fro-ing, a dynamic that can deflate nest eggs in a hurry.
The bottom line: Volatility comes with investing like fleas come with a dog. The good news is that there's a smart way to mitigate performance gyrations: world-class mutual funds. Such funds can provide an anchor for your portfolio, freeing you up to take home-run cuts at stocks that look like fence fodder while tamping down the damage that a strike out could do to your portfolio.
The big question
So how to identify funds that are intelligently managed?
For starters, you'll want to zero in on the management team's performance through up markets and down, looking for consistency when their strategy is out of favor and serious market-shellacking performance when it's in.
You'll also want to invest with managers who have the courage of their convictions and put their money where their mouths are: alongside of that of their investors. Last but not least, be sure to avoid overpriced index huggers. Why pay up for a fund that simply rises and falls with the S&P? Vanguard 500 Index
Then again, why hitch your portfolio's wagon to a fund that -- fine as it is on its own terms -- is destined to lose to the market by about the amount of its expenses each year? That's the destiny of all index trackers, after all.
The answer? You don't have to, not with the promise of Grade-A actively managed funds.
Over at the Fool's Champion Funds investing service, for example, we aim to identify the cream of the fund industry's actively managed crop each month. And so far, so good: Since opening for business more than three years ago, all of our recommendations have made money for shareholders, and each of our model portfolios has bested its benchmark as well. You can take a look at our winners list, model portfolios, and issue archives by clicking here for a risk-free spin of Champion Funds. See you there!
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Shannon Zimmerman, lead analyst for Motley Fool Champion Funds, doesn't hold a financial position in any of the companies listed. Wal-Mart and Dell are Motley Fool Inside Value recommendations. Bank of America is an Income Investor pick. Dell is also a Stock Advisor selection. The Fool is investors writing for investors, and you can read all about our disclosure policy here.