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Investors could be partying like it’s 1997, but many sat out

NEW YORK — Break out the Spice Girls CDs. That was one of the best years in decades for funds.

Funds of all types made money through 2019, from risky ones full of stocks from developing economies to stodgy funds holding only super-safe Treasury bonds. Someone who came into 2019 with their money split between the largest U.S. stock and U.S. bond funds made 19.6% last year. That’s the most since the Spice Girls and Notorious B.I.G. were topping the charts in 1997 and Vanguard’s Total Stock Market Index and Total Bond Market Index funds returned a composite 20.2%.

Give credit to central banks around the world, which cut interest rates and unleashed stimulus in hopes of goosing the global economy amid low inflation. The moves helped silence a warning bell of recession that sounded in the U.S. bond market during the summer, the first time that had happened since the run-up to the Great Recession. A truce in the trade war between the U.S. and China also gave the markets a lift toward year’s end.

Yet, even though markets steadily rose to one of their best years since the days of Fruitopia, many investors simply couldn’t stomach joining the ride — or even staying on it.

“Investors generally are nervous,” said Greg Davis, chief investment officer at Vanguard. “There’s uncertainty given all the trade concerns, uncertainty around fiscal policy, and it’s been a reluctant rally.”

Investors yanked $130 billion out of U.S. stock mutual funds and ETFs through the first 10 months of the year, according to the Investment Company Institute. Over the same time, they poured $363 billion into bond funds. Another $445 billion went into money-market funds as some investors preferred to huddle in the safety of cash.

Here’s a look at some of the trends that shaped the year for fund investors:

Normally, bond funds do well when there are concerns about the health of the economy. Stock funds, meanwhile, do well when investors see bigger profits ahead for companies.

In 2019, both stock and bond funds logged strong returns and rebounded from a rough 2018. The average fund invested in a mix of large U.S. stocks returned 28.6%, as of Dec. 23, while the average intermediate-term core bond fund returned 7.8%, according to Morningstar.

Stock funds rose even though profits fell for many companies: S&P 500 earnings per share fell in each of the first three quarters compared with prior-year levels, according to FactSet.

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