Don't Judge a Fund by Its Cover

The top-performing hybrid funds for November reveal that this extraordinary market has shaken up past practices and long-held beliefs of the asset management industry.

The industry's biggest fallacy of all is the notion that a fund must be at least 95% invested in the markets at all times and therefore permitted a maximum allocation to cash of only 5%. But such thinking has made the entire asset-management system more rigid and less flexible in the event of a serious crisis such as the one now before us.

Built on 401ks, indexation and diversification and the notion that long-term investing serves as a cure-all for lack of investment knowledge, this rigid system is one that's crumbling before our very eyes, along with the retirement savings of this nation. It will take many years, perhaps decades, to rebuild all of the capital that will eventually be lost. Had cash allocations been allowed to grow to higher levels and managers of funds been more prudent in their management of others' money, the eventual toll would likely not have been as great. ...