Did basically all mutual funds have a significant crash in 2008?
In 2008, the S&P was down 37%.  I love charts that show sector performance by year, as it helps show that 2008 wasn't like the crash of 2000-01 which was more tech-centric. Funds that were more geared towards bonds would have been up as the 10 year Treasury was up 20%.  I understand you have a low risk tolerance. Over the long term, this will cost you. The CAGR for the S&P from 1928-2011 was 9.23%, for treasuries, 5.14%. This difference adds up dramatically over time. These rates double your stock investments every 8 years on average vs nearly 14 years for bonds.  See the MoneyChimp site to tinker with start/finish years to understand long term returns. "I will solely address your fear because from what I read you fear investing in something that could possibly go down in the future.  This is almost identical to market timing, so let's use the SPY as an example.  Look at the SPY on Yahoo Finance, specifically in 2011.  The market experienced a little bit of a pull back during the year, and some ""analysts"" claimed that it would fall below 600 (read this).  In fact, a co-worker of mine said that he feared buying the S&P 500 in 2011 (as well as in 2010), so he bought gold (compare the two from 2011 to now - to put it bluntly he experienced 50% less gain than I did). Did the S&P 500 ever fall below 600 in that timeframe, or according to the linked analyst (there were plenty of similar predictions then)?  No.  If you avoid doing something because you're afraid it could drop, technically, you should be just as afraid of it rising (Fear of Losing Everything, FOLE, vs. Fear of Missing Out, FOMO - both are real).  That's not to say invest out of fear, but that fear cuts both ways, and generally, we only look at it from one side. Retirement investing should be a boring, automated process where, ideally, we don't try and time the market (though some will try, and like in 2011, fail).  If you can't help your fear, you can always approach retirement investing with automated re-balancing where you hold some money in ""less risky"" forms and others in ""higher risk"" forms and automate a rebalance every month or quarter." The literal answer to your question is that a number of different types of mutual funds did not have significant downturns in 2008. Money Market Funds are intended to always preserve capital. VMMXX made 2.77% in 2008. It was a major scandal broke the buck, that its holders took a 3% loss. Inverse funds, which go up when the market goes down, obviously did well that year (RYARX), but if you have a low risk tolerance, that's obviously not what you're looking for. (and they have other problems as well when held long-term) But you're a 24-year-old talking about your retirement funds, you should have a much longer time horizon, at least 30 years. Over a period that long, stocks have never had negative real (inflation-adjusted) returns, dating back at least to the civil war. If you look at the charts here or here, you can see that despite the risk in any individual year, as the period grows longer, the average return for the period gets tighter and tighter. If you look at the second graph here, you see that 2011 was the first time since the civil war that the trailing 30-year return on t-bills exceeded that for stocks, and 1981-2011 was period that saw bond yields drop almost continuously, leading to steady rise in bond prices. Although past performance is no guarantee of future results, everything we've seen historically suggests that the risk of a broad stock-market portfolio held for 30 years is not that large, and it should make up the bulk of your holdings. For example, Vanguard's Target retirement 2055 fund is 90% in stocks (US + international), and only 10% in bonds.
Yes, but that wasnt the real issue. Lehman brothers didnt bring the recession, they were just a symptom of it. The real issue was the commodization of private loans provided by banks which weren't properly vetted or secured and were sold as AAA investments. So when a run on those investments occured, their value plummeted leaving many investment institutions with a gaping hole in their accounts that quickly grew in scope. "Sure, it doesn't, but realistically they can't/shouldn't do anything about it in their index funds, because then they're just another stock picker, trying to gauge which companies are going to do best.  Their funds not all being indexes is what I was getting at with my original question. How much leeway do they have in their definitions of other funds? IE, if they had a dividend fund that included all large cap dividend paying stocks above 3% yield, they couldn't take out Shell just because of climate risk without fundamentally changing what the fund is. But if it's just ""income fund"" then they can do whatever in that space." A strategy of rebalancing assumes that the business cycle will continue, that all bull and bear markets end eventually.  Imagine that you maintained a 50% split between a US Treasury bond mutual fund (VUSTX) and an S&P 500 stock mutual fund (VFINX) beginning with a $10,000 investment in each on January 1, 2008, then on the first of each year you rebalanced your portfolio on the first of January (we can pretend the markets are open that day). The following table illustrates the values in each of those funds with the rebalancing transactions: This second table shows what that same money would look like without any rebalancing over those years: Obviously this is cherry-picking for the biggest drop we've recently experienced, but even if you skipped 2008 and 2009, the increase for a rebalanced portfolio from 2010-2017 is 85% verses 54% for the portfolio that is not being rebalanced in the same period. This is also a plenty conservative portfolio. You can see that a 100% stock portfolio dropped 40% in 2008, but the combined portfolio only dropped 18%. A 100% stock portfolio has gained 175% since 2009, compared to 105% for the balanced portfolio, but it's common to trade gains for safety as you get closer to retirement. You didn't ask about a 100% stock portfolio in your initial question. These results would be repeated in many other portfolio allocations because some asset classes outperform others one year, then underperform the next. You sell after the years it outperforms, then you buy after years that it underperforms. "A brief review of the financial collapses in the last 30 years will show that the following events take place in a fairly typical cycle: Overuse of that innovation (resulting in inadequate supply to meet demand, in most cases) Inadequate capacity in regulatory oversight for the new volume of demand, resulting in significant unregulated activity, and non-observance of regulations to a greater extent than normal Confusion regarding shifting standards and regulations, leading to inadequate regulatory reviews and/or lenient sanctions for infractions, in turn resulting in a more aggressive industry ""Gaming"" of investment vehicles, markets and/or buyers to generate additional demand once the market is saturated ""Chickens coming home to roost"" - A breakdown in financial stability, operational accuracy, or legality of the actions of one or more significant players in the market, leading to one or more investigations A reduction in demand due to the tarnished reputation of the instrument and/or market players, leading to an anticipation of a glut of excess product in the market ""Cold feet"" - Existing customers seeking to dump assets, and refusing to buy additional product in the pipeline, resulting in a glut of excess product ""Wasteland"" - Illiquid markets of product at collapsed prices, cratering of associated portfolio values, retirees living below subsistence incomes Such investment bubbles are not limited to the last 30 years, of course; there was a bubble in silver prices (a 700% increase through one year, 1979) when the Hunt brothers attempted to corner the market, followed by a collapse on Silver Thursday in 1980.   The ""poster child"" of investment bubbles is the Tulip Mania that gripped the Netherlands in the early 1600's, in which a single tulip bulb was reported to command a price 16 times the annual salary of a skilled worker. The same cycle of events took place in each of these bubbles as well. Templeton's caution is intended to alert new (especially younger) players in the market that these patterns are doomed to repeat, and that market cycles cannot be prevented or eradicated; they are an intrinsic effect of the cycles of supply and demand that are not in synch, and in which one or both are being influenced by intermediaries. Such influences have beneficial effects on short-term profits for the players, but adverse effects on the long-term viability of the market's profitability for investors who are ill-equipped to shed the investments before the trouble starts." "I think practically, although we most surely will have real estate ""bubbles"", nothing will hit 2008 style panic for a long time, as the banks are now not nearly as leveraged as they were back then. All large banks passed the feds ""stress test"" this year for the first time. Housing prices may drop a bit, and that correction may dip the market (or vice versa), but there will be much less damage to the economy." No, there's nothing special in mutual funds or ETFs. Wash sale rules apply to any asset. The real folly is in believing that somehow 'regulators' are going to be able to prevent crashes, or even if this is desirable.  Usually the idea that regulators can prevent crashes relies on regulators being issued a retroactive time machine.  Crashes.  Happen.   If regulators had more power and more authority prior to 2008, the housing market crash would have been worse and more severe than it actually was, because regulators were like everyone else - they believed house prices would never go down, and were focussing their efforts on regulating  banks to lend *more* money to *riskier* borrowers. From a mathematical point of view the stats do not change depending on past performance. Just because a fund is lucky one year doesn't mean that it will be unlucky the next. Consider tossing a coin, the chance of heads is 50%. If you have just thrown 3 heads, the chance of heads is still 50%. It doesn't go down.  If you throw 10 heads in a row the chance of a heads is still 50%, in fact you many suspect there is something odd about the coin, if it was an unfair coin then the chance of a heads would be higher than 50%. It could be the fund is better run, but there could be other reasons, including random chance. Some funds will randomly do better and some will randomly do worse What you do know is that if they did better than average other funds have done worse, at least for last year. For your base question, yes.  (Barring some major collapse-of-civilization event, but in that case you're screwed anyway :-))  On the individual points: 1) Depends on whether you choose to invest in index-type funds (where profit is mainly expected from price appreciation), or more value-based investing.  But either or a mix of the two (my own choice) should show returns above inflation, over the long term. 2) Yes, in the US anyway.  You can invest a few hundred dollars at a time, and (with good companies like Vanguard & T. Rowe Price) there are no transaction fees, either for investing or for redeeming.   3) Long-term, it's crash-proof IF you have the self-discipline not to panic-sell at market lows.  In my case, my total fund valuation dropped around 40% in '08.  I didn't sell anything (and in fact tried to cut spending and invest more), and now I have nearly double what I had before the crash. Bottom line is that it has worked for me.  After ~30 years of investing this way without being fanatic about it, I have enough that I could live moderately without working for the rest of my life.  Not - and this is where I part company with MMM and most of the FIRE community - that I'd ever want to actually retire.  But my modest financial independence gives me the freedom to work at things I like, rather than because I'm worrying about paying bills. This is why I am amazed that people are saying this time the market is different; it will only correct itself; we won't see another crash like '08.  When in reality, all of the data is pointing to a bubble that is about to burst worst than '08. "I went to Morningstar's ""Performance"" page for FUSEX (Fideltiy's S&P 500 index fund) and used the ""compare"" tool to compare it with FOSFX and FWWFX, as well as FEMKX (Fidelity Emerging Markets fund).  According to the data there, FOSFX outperformed FUSEX in 2012, FEMKX outperformed FUSED in 2010, and FWWFX outperformed FUSEX in both 2010 and 2012.  When looking at 10- and 15-year trailing returns, both FEMKX and FWWFX outperformed FUSEX. What does this mean?  It means it matters what time period you're looking at.  US stocks have been on an almost unbroken increase since early 2009.  It's not surprising that if you look at recent returns, international markets will not stack up well.  If you go back further, though, you can find periods where international funds outperformed the US; and even within recent years, there have been individual years where international funds won. As for correlation, I guess it depends what you mean by ""low"".  According to this calculator, for instance, FOSFX and FUSEX had a correlation of about 0.84 over the last 15 years.  That may seem high, but it's still lower than, say, the 0.91 correlation between FUSEX and FSLCX (Fideltiy Small Cap).  It's difficult to find truly low correlations among equity funds, since the interconnectedness of the global economy means that bull and bear markets tend to spread from one country to another.  To get lower correlations you need to look at different asset classes (e.g., bonds). So the answer is basically that some of the funds you were already looking at may be the ones you were looking for.  The trick is that no category will outperform any other over all periods.  That's exactly what volatility means --- it means the same category that overperforms in some periods will underperform in others.  If international funds always outperformed, no one would ever buy US funds.  Ultimately, if you're trying to decide on investments for yourself, you need to take all this information into account and combine it with your own personal preferences, risk tolerance, etc. Anecdotally, I recently did some simulation-based analyses of Vanguard funds using data from the past 15 years.  Over this period, Vanguard's emerging markets fund (VEIEX) comes out far ahead of US funds, and is also the least-correlated with the S&P 500.  But, again, this analysis is based only on a particular slice of time." "This falls under value investing, and value investing has only recently picked up study by academia, say, at the turn of the millennium; therefore, there isn't much rigorous on value investing in academia, but it has started. However, we can describe valuations: In short, valuations are randomly distributed in a log-Variance Gamma fashion with some reason & nonsense mixed in. You can check for yourself on finviz.  You can basically download the entire US market and then some, with many financial and technical characteristics all in one spreadsheet. Re Fisher: He was tied for the best monetary economist of the 20th century and created the best price index, but as for stocks, he said this famous quote 12 days before the 1929 crash: ""Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.""   - Irving Fisher, Ph.D. in economics, Oct. 17, 1929 EDIT Value investing has almost always been ignored by academia.  Irving Fisher and other proponents of it before it was codified by Graham in the mid 20th century certainly didn't help with comments like the above.  It was almost always believed that it was a sucker's game, ""the bigger sucker"" game to be more precise because value investors get destroyed during recession/collapses.  So even though a recessionless economy would allow value investors and everyone never to suffer spontaneous collapses, value investors are looked down upon by academia because of the inevitable yet nearly always transitory collapse.  This expresses that sentiment perfectly. It didn't help that Benjamin Graham didn't care about money so never reached the heights of Buffett who frequently alternates with Bill Gates as the richest person on the planet.  Buffett has given much credibility, and academia finally caught on around in 2000 or so after he was proven right about a pending tech collapse that nearly no one believed would happen; at least, that's where I begin seeing papers being published delving into value concepts.  If one looks harder, academia's even taken the torch and discovered some very useful tools. Yes, investment firms and fellow value investors kept up the information publishing, but they are not academics. The days of professors throwing darts at the stock listings and beating active managers despite most active managers losing to the market anyways really held back this side of academia until Buffett entered the fray and embarrassed them all with his club's performance, culminating in the Superinvestors article which is still relatively ignored.  Before that, it was the obsession with beta, the ratio of a security's variance to its covariance to the market, a now abandoned theory because it has been utterly discredited; the popularizers of beta have humorously embraced the P/B, not giving the satisfaction to Buffet by spurning the P/E.   Tiny technology firms receive ridiculous valuations because a long-surviving tiny tech firm usually doesn't stay small for long thus will grow at huge rates.  This is why any solvent and many insolvent tech firms receive large valuations: risk-adjusted, they should pay out huge on average.  Still, most fall by the wayside dead, and those 100 P/S valuations quickly crumble. Valuations are influenced by growth.  One can see this expressed more easily with a growing perpetuity: Where P is price, i is income, r is the rate of return, and g is the growth rate of i.  Rearranging, r looks like: Here, one can see that a higher P relative to i will dull the expected rate of return while a higher g will boost it. It's fun for us value investor/traders to say that the market is totally inefficient.  That's a stretch.  It's not perfectly inefficient, but it's efficient.  Valuations are clustered very tightly around the median, but there are mistakes that even us little guys can exploit and teach the smart money a lesson or two. If one were to look at a distribution of rs, one'd see that they're even more tightly packed.  So while it looks like P/Es are all over the place industry to industry, rs are much more well clustered. Tech, finance, and discretionaries frequently have higher growth rates so higher P/Es yet average rs.  Utilities and non-discretionaries have lower growth rates so lower P/Es yet average rs." "Yes, many hedge funds (for example) did not survive 2008-2009.  But hedge funds were failing both before and after that period, and other hedge funds thrived.  Those types of funds are particularly risky because they depend so much on leverage (i.e. on money that isn't actually theirs). More publically-visible funds (like those of the big-name index fund companies) tended not to close because they are not leveraged.  You say that ""a great many companies"" failed during the recession, but that's not actually true.  I can't think of more than a handful of publically-traded companies that went bankrupt.  So, since the vast majority of publically-traded companies stayed in business, their stocks kept some/most of their value, and the funds that owned those stocks stayed afloat. I personally did not see a single index fund that went out of business due to the recession." This is not hypothetical, this is an accurate story. I am a long-term investor. I have a bunch of money that I'd like to invest and I plan on spreading it out over five or six mutual funds and ETFs, roughly according to the Canadian Couch Potato model portfolio (that is, passive mutual funds and ETFs rather than specific stocks). I am concerned that if I invest the full amount and the stock market crashes 30% next month, I will have paid more than I had to. As I am investing for the long term, I expect to more than regain my investment, but I still wouldn't be thrilled with paying 30% more than I had to. Instead, I am investing my money in three stages. I invested the first third earlier this month. I'll invest the next third in a few months, and the final third a few months after that. If the stock market climbs, as I expect is more likely the case, I will have lost out on some potential upside. However, if the stock market crashes next month, I will end up paying a lower average cost as two of my three purchases will occur after the crash. On average, as a long-term investor, I expect the stock market to go up. In the short term, I expect much more fluctuation. Statistically speaking, I'd do better to invest all the money at once as most of the time, the trend is upward. However, I am willing to trade some potential upside for a somewhat reduced risk of downside over the course of the next few months. If we were talking a price difference of 1% as mentioned in the question, I wouldn't care. I expect to see average annual returns far above this. But stock market crashes can cause the loss of 20 to 30% or more, and those are numbers I care about. I'd much rather buy in at 30% less than the current price, after all. From mid 2007 to early 2009 the DJI went down about 50 %. This market setback won't happen on a single day or even a few weeks.  Emergency funds should be in cash only. Markets could be closed for an unknown period of time.  Markets where closed September 11 until September 17 in 2001.