Performance 'Races' Rarely Have a Solid Finish Line.

PEOPLE like to talk about mutual fund investing as though it were a track meet. Call it the Fund Performance Games, with results posted not just annually and quarterly but every month, week and day.

Here's a winner, there's a loser -- it's all in good sport. The competition among fund managers to put up the best possible numbers surely works to investors' benefit.

Beyond a certain point, though, the analogy breaks down. Take it far enough and it leaves you with a distorted view of the whole enterprise.

The next time the metaphor creeps into your consciousness, remind yourself that, from the shareholder's point of view, fund investing has neither a starting gun nor a finish line. Shareowners get no practical benefit from trying to outdo one another, and speed may be a liability instead of an attribute.

Look at any recent table of fund performance. For purposes of illustration here, I used the Lipper Inc. rankings of the 30 largest stock funds as of the end of April.

The Janus Twenty Fund, up 14.3 percent, and the Janus Fund, up 13 percent, turned in the best results for the month. The year-to-date leader was the Vanguard Windsor Fund, up 5 percent. For the past 12 months, the standout was Vanguard Health Care, up 23.8 percent. Each distance had a different winner.

Sector fund

Vanguard Health Care, which has done an impressive job riding the long bull market in its sector, also came in first in the three and five-year rankings. However, as a specialized fund, it takes a risk that investors don't face in more broadly diversified stock funds with holdings in a variety of industries.

Performance-race thinking has proved especially confusing for people who bought an index fund on the persuasive argument that such funds, with their lower costs, should beat the majority of their managed competitors most of the time.

The Vanguard 500 Index Fund, up 15.5 percent a year over the past five years, outperformed 17 of its 29 fellow giants. But over the last three years, with a 5.3 percent annualized gain, it finished ahead of just four of those rivals.

Since all 30 big funds posted annualized gains of at least 11 percent over the past five years, I'd argue that everybody in the race won. That's especially true for investors in funds such as Putnam Growth & Income or Fidelity Equity Income, which pursue what most people would consider a more conservative mission than trying to keep up with the S&P 500.

Did you buy your fund shares right at the beginning of a measuring period and sell precisely at the end? Unless you adopt that unusual approach, the fund's number for any calendar period is academic in your case.

Underrated factor

It turns out, anyway, that the most important question often isn't how fast you traveled, but whether you were in the race or not.

If your college-savings funds grew by 15 percent a year while somebody else's posted a "score" of 20 percent per annum, so what? Your purpose has nothing to do with comparisons, and 15 percent should be good enough to get you where you want to go. Conversely, if your nest egg declines by 15 percent while others lose 20 percent, your bragging rights won't help you when it's time to pay bills.

The key component of investing success that seldom gets mentioned is "amount contributed." If you invest $20,000 a year for 10 years at a modest return of 6 percent a year, according to the personal savings plan analyzer on my Bloomberg, you'll have $263,615.90. If you invest half as much, $10,000 a year, at twice the return, 12 percent a year, you'll have $175,487.35.

Well, you may say, it takes a lot less work to set aside $10,000 a year than $20,000. Ideally, you'd like the money invested to do as much of the heavy lifting as possible.

I wouldn't argue with that -- except to say that getting a higher return on your money can be hard work of a different kind. Staying awake at night worrying about a high-risk portfolio? Spending hours poring over aggressive investment choices? Sometimes getting your money to do tricks is labor of the most stressful kind.

Chet Currier is a columnist for Bloomberg News.

Downturn Doesn't Result in Big Retreat

It's mighty quiet out there in Mutual Fund Land.

Here we are, more than a year into the worst bear market in a generation, and you hear scarcely a peep of recrimination directed at fund managers and directors.

Anybody who remembers the bitter disillusionment with funds during the market decline in the late 1960s and early 1970s is bound to ask: Where are the lawsuits of yesteryear?

Paul Roye, director of the division of investment management at the Securities and Exchange Commission, said the regulatory agency has seen only a slight increase in complaints about sales practices and fund performance.

"They've gone up a little bit, but not to any alarming extent," Roye said in answer to my question at last week's annual meeting of the Investment Company Institute trade association.

Monthly data compiled by the ICI showed a $20.6 billion outflow from stock funds in the brutal month of March, when the Standard & Poor's 500 Index plunged 6.3 percent to extend its 12 - month drop to 21.7 percent.

In dollar terms, that represented the biggest-ever net withdrawal of money. But in the context of the imposing size of the stock fund industry -- assets of $3.7 trillion as March began -- the outflow amounted to less than six-tenths of 1 percent of the total pot .

Once investors came to view funds as long-term, diversified vehicles -- buses rather than sports cars-the relationship grew more stable. Expectations make a world of difference.