High-risk funds rarely pay off, even for young investors

— -- You're young. You're daring. And your 401(k) portfolio looks like your first car after it rolled into Dry Gulch Creek. What should you do? Invest like an old fogey, that's what.

Financial planners often tell young people to buy risky funds, but that's not the best advice. Young people don't need risky funds because they have plenty of time. And risky funds rarely produce sky-high returns over the long term.

Although young people do have time to repair blunders, some mistakes are easier to make up for than others. It's easier to replace a bumper, for example, than to extricate your car from Old Man Taylor's credenza.

Some of the most speculative funds crashed in the last bear market. Consider the ProFunds UltraBull fund, which uses futures and options to rise (or fall) two times as much each day as the Standard & Poor's 500-stock index. If this fund were a car, it would be the Batmobile. It has soared 93.4% since the bull market began on March 9.

UltraBull turned into a joker during the bear market, however, and plunged 70.2%. You'd think that the good times make up for the bad. You'd be wrong. The fund has fallen 76% the past decade.

In the very long term — 20 to 30 years — the riskiest types of funds really haven't paid off. Small-company stocks, for example, tend to have bigger moves up and down than their larger, stuffier brethren, but they also have more growth potential. That's why planners often recommend small-cap funds for younger investors.

Unfortunately, that advice hasn't worked out too well for the past quarter-century. For example, the Lipper Small-Company Stock Fund index has gained 634% the past 25 years. Not bad, but the Lipper Equity Income Fund index has jumped 766%. Equity-income funds invest in stocks of big, dividend-paying blue-chip companies, the kind you associate with pensions and your great-granddad's trust. Top fund categories the past 25 years:

•Midcap value, up 945%.