Bonds Still Socking Stocks, but Don't Bet on a Repeat

Fund investors will remember 2001 as a dreary odyssey, but the clouds over Wall Street and Silicon Valley are slowly lifting.

The dreary part is obvious. Stocks are finishing up their worst two-year stretch in nearly 30 years thanks to the potent combination of an economic recession, shrinking corporate profits, steep stock valuations and September's vicious terrorist attacks. For fund investors, that translated into a repeat of last year with even lower lows. In a repeat of 2000, bond funds are about to beat stock funds, and the buckling tech sector has dragged tech and tech-heavy growth funds to the fund world's musty cellar. But that ravaged pocket of the market is now finishing the year on a tear, as investors look to rosier days ahead.

The upshot: The tech mania of the late 1990s and the past two bonny years for wallflower types like bonds and cheap, small-cap stocks have put the value of diversification in stark relief. The idea is that for most of us it makes more sense to spread our money among a blend of growth, value and bond funds, rather than relying heavily on one style or sector.

As If

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