Measure fund's performance during market cycles
— -- Mutual fund performance depends on many things: the number of stocks in the fund's portfolio, for example, the fees that the fund charges and the manager's drinking habits.
A fund's performance shouldn't depend too heavily on the rotation of the Earth around the sun, however, unless the planet strays into some alien's shipping lane. But that's precisely how we measure performance: How did my fund do this year? Last year? The past 10 years?
It's much more useful to measure a fund by how it has performed during market cycles. Ideally, you'd like a fund that fares better than its peers in both bull and bear markets. We've had two bull and two bear cycles in the past decade, and a few funds have done exceptionally well in good times and bad. Although we never know what the next market will be like, these all-weather funds are worth a look.
The Standard & Poor's 500-stock index fell 19% from July 17, 1998, through Aug. 31, 1998 — just shy of the classic 20% decline required for an official bear market, but close enough for our purposes. So we're going to start the first bull market for this exercise on Aug. 31, 1998.
The S&P 500 soared 60% from August 1998 through its peak in March 2000, then swooned for a 49% loss in the ensuing bear market, the worst since the Great Depression. From October 2002 to its next peak, in October 2007, the S&P 500 leaped 101%. As of Thursday, the S&P has fallen 18.5%.
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