NEW YORK (AP) — Hearts raced faster as stock markets around the world stumbled in January, but that didn't stop investors from plugging more money into mutual funds.
For a seventh straight month, investors put more cash into mutual funds than they withdrew, according to Lipper. Funds that invest in a mix of U.S. stocks attracted $10.6 billion, for example. That was despite the worst start for the Standard & Poor's 500 index since 2010.
To be sure, January is historically the month when savers are most inclined to put money into mutual funds. It's their first opportunity to invest in individual retirement accounts in the new tax year. But a look at which individual funds were attracting -- and bleeding -- the most dollars last month illustrates several trends that took hold last year. Among them:
— INDEX AND TARGET-DATE FUNDS CONTINUE TO SHINE.
The most popular fund last month was Vanguard's Total Stock Market Index fund, which took in $3.1 billion in net investment, according to Morningstar. It's not a big surprise. It was the third-most popular fund of 2013, attracting $17.5 billion. It is also the largest mutual fund, with $302 billion in assets at the end of January.
It's participating in a broader tide of dollars flowing to index mutual funds. Such funds try to mimic a broad market index rather than beat it. Vanguard's Total Stock Market Index fund tracks an index that covers nearly every stock that trades on the New York Stock Exchange and Nasdaq, from small companies like cupcake bakery Crumbs Bake Shop to giants like Apple.
Because index funds don't research individual investments, they charge lower fees. Vanguard's Total Stock Market Index fund has an expense ratio of 0.17 percent, which means that $17 of every $10,000 invested in the fund is used to pay manager salaries and other operating costs each year. The average expense ratio for the category is 1.11 percent.
The Total Stock Market Index fund also is benefiting from increased interest in target-date retirement funds. These are funds built for people who don't want to worry about how to divvy up their retirement savings among stocks, bonds and cash. When investors are far away from retirement, target-date funds automatically keep most of their accounts in stocks. As their retirement date comes closer, the funds automatically shift more assets toward bonds.