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, and it will drag 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. Forest Laboratories (NYSE:FRX), Boston Scientific (NYSE:BSX), and International Game Tech (NYSE:IGT), for example, boast double-digit earnings-growth prospects over the next five years, and yet over the past 12 months, all have suffered stock-price declines.
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 Procter & Gamble (NYSE:PG) and IBM (NYSE:IBM) -- two companies with price-to-earnings (P/E) ratios that clock in below their industries' average. 3M (NYSE:MMM) and Caterpillar strike a similarly discounted profile.
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 roughly 48% -- and far less volatility than they would experience with 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, taken collectively, our recommendations have beaten the market by more than 13 percentage points.
If you'd like to sneak a peek at our Champion Funds winner's list, just click here for a completely free 30-day guest pass. There's no obligation to subscribe.
Take Champion Funds for a test-drive now, and you'll also have access to our latest special reports: The Challenge: ETFs vs. Mutual Funds and Add Kick to Your 401(k)! Just click here to snag the reports along with your risk-free membership.
This article was originally published on March 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. At the time of publication, Shannon didn't own any of the securities mentioned above. 3M is a Motley Fool Inside Value recommendation. You can check out the Fool's strict disclosure policy by clicking right here.
