Are Mutual Funds Worthwhile To Buy In This Recession?

As the economy continues to head south, many investors grow more and more fearful as they watch the values of their portfolios slide relentlessly. Everyone seems to have different advice on the matter, from “just buckle down and ride it out” to “get out of the stock market and buy gold”. Without knowing just how low stocks can go, it can be difficult to know whether you should be buying anything right now. The problem becomes more confusing when you look at mutual funds.

Mutual funds come in all sizes and flavors. Some are based on industries, some on ethics, and some on broader market indices. They all have different fee structures and expense profiles. So how can you tell if you should be investing in mutual funds during the recession? And, if so, which ones?

For the casual investor who does not have the time or inclination to actively manage his or her own portfolio, mutual funds reduce the time and effort needed. That stays true even in a recession. The trick is finding mutual funds that do well in tough economic times. There are certain industries that weather recession better than others and the best mutual funds will be sector funds which are based on a specific industry. Industries that do well during economic downturn include utilities (everyone still needs to keep the lights on), oil and gas (still need to drive to work), and staple consumer goods (babies still need diapers and kids still need clothes).

Mutual funds in recession-proof sectors can still be volatile and under-perform if the fund manager buys and sells constantly or the fund charges a high management fee. Review the fee structures for the funds you are considering and choose one with a high historical return and low fee.

Mutual funds can still be the foundation of your investment portfolio if you choose carefully and understand the basics. There are bargains to be had in the current economic climate. All stocks, and therefore all mutual funds, are being punished because of the rampant fear and lack of confidence in the markets. Those mutual funds that contain good quality, recession-proof stocks will weather the storm and provide solid returns.

By: Bernz Jayma P.

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Author and entrepreneur Bernz Jayma P. is the owner of a financial blog, dedicated to helping people expand their knowledge about their personal finances. Learn up to date investing strategies and retirement planning by visiting www.Invesmint.com.