The Value of Proper Diversification Among Fund Objectives

Chart of the Week for November 17-23, 2000

There are two main ways to categorize mutual funds: by style (the average size and valuation of stocks held) and by objective (the investment goal of the fund). Both approaches have merit, and they often intertwine. Regardless of which one you favor, a proper diversification among different categories of funds provides protection against market fluctuations.

Looking at the chart above, it’s clear that no single investment objective consistently beats the others. The top line, which shows the best-performing objective for each year, makes this point. So does the bottom line, which shows the worst-performing objective for the same period. For instance, aggressive growth funds were the top-performing funds in 1991, 1992 and 1993 but were the worst-performing funds in 1996 and 1997.

The difference in risk among objectives is also illustrated. For example, aggressive growth funds are typically either the strongest or the weakest performers— they’re rarely in the middle. And while less-risky equity income funds lagged in 1998 and 1999, when risk-taking was rewarded, they’re on top so far in 2000, when risk aversion has been rewarded.

The year-to-year fluctuations make it practically impossible to predict which category of funds will reward investors with high returns. Investors can diversify among different objectives to protect their assets against market gyrations.

* This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing. Past performance does not guarantee future results. Investment returns and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 1-800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240, or by visiting www.icmarc.org. Please consult both the current Vantagepoint Funds prospectus and MAKING SOUND INVESTMENT DECISIONS: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights and investment objectives, risks and performance information prior to investing any money. Vantagepoint securities are distributed by ICMA-RC Services LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. For a current prospectus, contact ICMA-RC Services LLC, 777 North Capitol Street NE, Washington, DC 20002-4240. 1-800-669-7400.