Play-it-safe investors missing out on stock fund growth

IN the investment world, lessons sometimes can be learned too well.

Burned by the stock market's plunge of 2000 to 2002, many individual investors have since stuck with a conservative portfolio strategy.

Now, after 4 1/2 years of rising share prices, some people ought to be wondering whether they've been too conservative for their own good.

The cautious mood that has marked this decade shows up in small investors' approach to mutual funds.

U.S. stock market indexes hit or neared record highs in the first half of this year, but they did so without much help from fund investors, who've had relatively little appetite for domestic stock funds for the last two years.

The single most popular fund category this year is as dull as its name: intermediate-term bond funds, which invest largely in conservative corporate and government bonds.

On the risk scale, that's light-years away from the technology-focused funds that were the ill-fated darlings of small investors at the peak of the late-1990s bull market.

Robert Bruce Woodcox, a 59-year-old ghostwriter of fiction and nonfiction books, says he was day-trading stocks in the 1990s. Today, he says, the riskiest thing in his portfolio is the Schwab Yield Plus bond fund, which holds short-term government and corporate IOUs.

The fund's annualized yield is about 5.5%, and its share price, $9.67 on Friday, hasn't changed much; in the last year it has kept within 2 cents of that figure.

In his day-trading period, "I made a lot of money and I lost a lot of money," says Woodcox, who lives in Corona del Mar. "That stays with you for a long time." The experience accounts for his hankering to protect principal, he says.

Still, asked what he's doing for growth in his portfolio -- at 59 he could easily live 20 or 30 more years, I reminded him -- Woodcox admitted he has been thinking more about that issue.

He isn't likely to get much growth from his bond fund. That isn't the job of bonds.

Some fund-industry data suggest Woodcox has plenty of company in the play-it-safe camp:

* Net new cash inflows to domestic and foreign stock mutual funds totaled $84.1 billion from January through May, down 31% from the $121.3 billion in the same period of 2006, according to the Investment Company Institute, the fund industry's trade group.

Net cash inflow totals are fund purchases minus redemptions by investors who are selling out.