Reader: Some of my funds are doing terribly this year, e.g. Vanguard Growth and Income and Windsor, for example. They haven't hit minus 10% yet but they are wallowing around. It still seems like a very volatile time in the market, lots of movement, mostly down. And my CD's that are renewing are coming in at awful rates, under 4%. Good time for borrowing, bad time for people with cash.

funds-newsletter: There are hardly any stock funds that are doing well these days, with the range going from slightly negative to yes, indeed, pretty terrible. With regard to the 2 Vanguard funds you mention, I would say that esp. if just looking at this yr's performance, they are near the middle of the pack as compared to most other funds. The real problem appears to be that they have trailed their peers when looking at 1 and 3 yr returns.

It's not easy to decipher why, but here is what I think. I know that Windsor is usually a "deep" large value type of fund, mean that it invests in stocks/industries that are deeply "undervalued". That may have led them too much into financial stocks which have taken the brunt of the subprime hit. I would suspect that the same may be true for Growth & Income only to a lesser extent since they too show a "value bias", even though they are in the Large Blend category. This apparently has hurt them esp. from the middle of last yr. on.

The question one needs to ask is whether this underperformance of these 2 funds, and others that have similar orientations, means it's time to exit. I believe that the value orientation, esp. of a fund like Windsor, will eventually come back. But as my last Model Portfolio shows, I am only willing to commit 10% of my total stocks to the Large Value category. Actually, the Gr. & Inc. fund, I believe, is on better footing of the 2. In short, I wouldnt dump them just bec. of recent short term performance problems. They have both done OK over the longer term.

I agree it is not a good time for money market funds or CDs. While interest rates are down, inflation is still a little higher than a few years ago. That means that your rate of return after inflation and taxes is close to zero, less certainly than a few yrs ago. That is why I recommend holding approx. twice as much money in bond funds as money market funds. Although there are some risks of higher inflation in bond funds these days, I believe that in this weak economy with the Fed still prone to lower rates further, this is a pretty safe time to be in bonds until the Fed actually starts raising rates again. I would guess that that would not happen for at least 6 mos. to a year or more.