Mutual Fund Buzz for October 1: Vanguard is King

Vanguard has overtaken Fidelity in total assets under management.

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The mutual fund industry has a new king. Vanguard is now the largest mutual fund family by assets, which topped $1.31 trillion as of July 31, compared with $1.24 trillion for its main rival Fidelity, according to the most recent data from the Investment Company Institute. Experts attribute Vanguard's rise to its focus on low-cost indexing. Bloomberg reports that almost 80 percent of the money that has flowed into Vanguard's stock and bond funds this year went to indexing. A Vanguard executive is quoted in the article saying, "People pay more attention to costs when returns are less." In a sign of the times, the once mighty Fidelity Magellan (FMAGX) is now only a quarter of the size of the Vanguard 500 Index (VFINX), according to Bloomberg.

Bloomberg: Indexing Helps Vanguard Top Fidelity in Fund Assets

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Most investors are still rattled and afraid to take on too much risk. A U.S. News article examines a new ICI survey that shows that 30 percent of mutual fund owners would be willing to take "above average" or "substantial" risk in an attempt to stretch for returns. That number remains unchanged from last year. In 2008, 37 percent said they'd do so. The effects of this sustained skittishness are quite apparent: Between the beginning of 2009 and the end of last month, investors pulled a combined total of $28 billion out of foreign and domestic stock funds, according to the ICI. Over that same time period, they poured $592 billion into bond funds.

[See U.S. News's Have You Been Burned By Wall Street?]

The Motley Fool offers advice on how to beat what some experts are calling the "new normal" of slower growth and lower investment returns in the future, arguing that investors may have to abandon traditional index funds and take on more risk if they want to beat the "new normal". The Fool suggests that investors with a higher risk tolerance look to growth stocks, such as Netflix and Green Mountain Coffee Roasters. For more conservative investors, the Fool favors dividend-paying stocks like Chevron and Paychex.

Motley Fool: How to Beat the New Normal