It has been the best of all possible worlds lately for both stock and bond fund investors. So much so that if this keeps up, fund investing is going to return to being quite profitable again.

In case you haven't noticed, most categories of stock funds are up somewhere between 5 and 10% so far in 2003. And if you have chosen the right categories of bond funds, ditto. So, if the gains could continue at the same pace for the remaining 7+ months of the year, you would be looking at full year returns of between 18 and 37%.

Well, let's not count our chickens until they're hatched, especially since there appear to be a growing number of problems cropping up within the economy. While many of the more short-term-oriented investors who prefer stocks may be of a mind to jump in head first right now, the economic clouds seem to getting gloomier rather than brighter. Even the Fed has now turned toward being openly worried from previously being "optimistic" as I discussed before in several previous articles on my site. And so to pick this particular time to be dropping one's cautions seems to only be suited for those traders who can perhaps profit by the shorter-term trends, hoping to switch course quickly when the tide turns the other way.

But the economic clouds that the Fed sees can be a boon to bond investors in the months if not years ahead, making it both practical and potentially wise to consider a higher allocation to bonds as a result of their recent pronouncement. Granted that what the Fed is saying is that there exists only the "minor" possibility of deflation - that is, the opposite of slowing rising prices, the latter which are actually good for the economy. Yet the ramifications of what they must now do to prevent this "minor" possibility from growing at all bigger, will likely help keep the excellent returns for bond investors rolling in for some time to come. I strongly suggest you look at an article I wrote on Oct. 11, 2002 for further perspective on why, not only for the US economy but elsewhere around the world, things may be teetering on the edge of harsher realities than most of us have thus far been willing to recognize are indeed possible.

So let's enjoy this relatively rare period of late when both stocks and bonds have risen nicely. Helped along by this recent spurt, had you been long- term invested in a broadly diversified portfolio of stock and bond funds that was able to a) capitalize to some degree on the bursting of the large growth stock bubble and b) profit handsomely in bonds from the weakness of the economy, your returns would be starting to put a smile on your face. In fact, while many investors are still looking at losses of over 30% over the last 3 years, those who parted company with how the majority of investors were, and mostly still are investing their funds, might now find that their investments over the same 3 years are back to where they were in 2000. For those so inclined to look at data, this is borne out by calculations shown at my web site. That is, those few who chose such a divergent path may now have side-stepped one of the worse periods for stock investors in many decades. But equally important, they should be well-positioned for avoiding some of the further damage that could come about in the years ahead.

Being a realist, I have seen enough to know that most investors will continue to be ignorant of or shrug off my advice. "It's only a matter of time before stock investors will be in the driver's seat again", they will probably say, meaning they still are nearly 100% confident that if they just buy once and never revisit their original decision ("buy and hold"), they are being as smart as one possibly can be, and that they will likely soon start reaping their "just rewards".

I will have probably stopped posting articles of this sort before we truly know how seriously, if at all, the investment landscape may have changed in the last few years. Each and every person has to act in accordance with their own personal interpretation of the facts. And I realize that although there are many other financial experts who advocate similar viewpoints to those that I espouse, by far the majority of people (and many experts too) will continue to believe what they have all along. In the meantime, it is great that we can all enjoy the best of all possible worlds - the great returns of late in both the stock and bond markets.