If you held on to your fund portfolio through the market downturn, you have plenty of reason to smile this year. The average large-cap stock fund has rebounded some 23% so far this year.  And some have done far better — small growth funds are ahead 30%, while Latin America stock funds have zoomed nearly 50%.

And best of all, you will probably pay little or no taxes on those gains.

That’s the assessment of Tom Roseen, a senior research analyst at Lipper, who tracks mutual fund taxes. More

Legg Mason's Bill Miller

For a top-notch stock fund manager, there’s nothing worse than poor returns. But one thing comes close: great performance that everyone ignores.  As The Wall Street Journal reported recently, many ace stock-pickers are having trouble attracting investors, even as they rack up double-digit return.

Consider Harry Lange of Fidelity Magellan (FMAGX), who has guided his fund to a 31% gain so far in 2009—some 15 percentage points ahead of the Standard & Poor’s 500. But during the first nine months of this year, shareholders have yanked $1.8 billion from the fund. More

If you want to measure the impact of the recession, there’s no better place to look than college financial aid offices. According to a just-released survey by the National Association for College Admission Counseling, some 90% of colleges and universities reported a spike in financial aid applications during the last admissions cycle. To meet the surge in demand, schools provided financial assistance to a larger number of  students, as well as boosted the amount of grants, loans and work-study.

Another bullet dodged. But the scramble to meet the needs of last year’s freshman class raises a couple of urgent questions. Will the schools be able to provide adequate aid for students applying for next year’s freshman class? And over the long run, will colleges remain affordable for middle-class students? More

Money market funds have long been a refuge for investors seeking safety and liquidity. But ever since the market meltdown, money funds have been under siege. Last September Reserve Primary Fund, which had invested in suddenly worthless Lehman Brothers commercial paper, "broke the buck"—that is,  allowed its net asset value to fall below a $1 per share. That led to panic, as frightened investors began pulling their savings out of these funds. In the end, the federal government stepped in to offer a temporary guarantee for the $3.6 trillion in money fund assets.

The panic subsided—and the federal guarantee expires in two weeks—but the regulatory scrutiny is still underway. The Security and Exchange Commission has proposed money fund rule changes that include higher credit quality and shorter maturities. But the most controversial notion, which is not in the proposed rules but was offered up for public comment, is a so-called  floating NAV, which would mean that a fund's net asset value per share would be free to move up and down, instead of being pegged at $1 per share. More

Maybe it’s a sign that recession really is easing: Once again we’re hearing arguments that you can save a lot less for retirement than the financial services industry would have you believe.

The last time this argument got much traction was in early 2007, when the housing market was still bubbling. Now John Rekenthaler, the well-respected vice president of research at Morningstar, has re-introduced this notion in a recent blog post entitled “The 80% Myth.” Writes Rekenthaler, “The financial services industry misleads the everyday investor by selling the notion that an 80% replacement rate of pre-retirement income is required for a successful retirement.”
As proof, Rekenthaler cites own parents, who retired at age 50 and have lived contentedly for nearly 30 years on just 50% of their pre-retirement income. They don’t eat out often or drink Starbucks, but they have traveled the world over. If his parents had aimed for 80% of pre-retirement income as the prerequisite for retiring, he notes, they might have had to work until age 70.

A modest income may work well for his parents. And it’s certainly true that the average retiree makes do with not that much. The median income for households headed by retirees is just $25,000 a year, according the Federal Reserve’s 2007 Survey of Consumer Finances (the most recent data available). That’s just about half the median income for all families, which is $47,000.

But does that mean aiming for an 80% income replacement ratio is really excessive? Consider that the past three decades have been extremely kind to retirees (2008 aside), who have benefited from strong GDP growth, low inflation, lower taxes, and bull markets in both equities and bonds. That’s undoubtedly helped many of them get by, along with a big boost from Social Security — the largest single source of income for people 65 and older, accounting for 40%.

Future retirees, however, face a very different economy than earlier generations. The problems with funding Social Security are serious. Moreover, given the trillions of dollars in debt being racked up by the U.S. government's  bailout efforts, many economists say higher tax rates are inevitable. Meanwhile, forecasts for economic growth and investment returns are lower.
And then there’s the problem of soaring healthcare costs. A recent study by the Employee Benefit Research Institute found that a typical 65-year-old male retiring in 2009 would need savings of anywhere from $68,000 to $173,000 to cover health insurance premiums and out-of-pocket expenses in order to have a 50-50 chance of affording those bills. To have a 90% chance, you would need to set aside $134,000 to $378,000. Women, who tend to live longer, need even more. The current healthcare reform efforts in Washington may slow the rate of increases, but that remains to be seen.

In the end, 50% or 80% of pre-retirement income targets are only rough rules of thumb. The only way to be sure you’re setting aside enough money for your needs is to draw up a realistic retirement budget — something that only becomes possible when you’re actually closing in retirement. But if you add up the economic challenges ahead, it seems pretty clear that it’s better to set your savings target high rather than low. The consequences (and the likelihood) of saving too much are small, while the consequences of saving too little could be disastrous. And by saving a lot now, we can all learn to live on less, which looks to be good practice for the years ahead.

It looks like the end of the American retirement dream as we know it. The 77 million baby boomers who are heading into their golden years with shattered nest eggs may prove to be the first generation in modern U.S. history to have less retirement security than their predecessors.

The numbers tell the story. For older workers, those ages 55-64, nearly 30% had no personal retirement savings — zip, nada — according to a recent analysis by benefits consultants Watson Wyatt, which reviewed data from the 2007 Survey of Consumer Finances (the most recent available). Those non-savers were mainly low-income households, but even among middle- and upper-income groups, retirement wealth was "generally inadequate," say the consultants.

Worse, only an elite 15% of households of any income level had saved the equivalent of at least four times earnings. And even that level of savings will probably not be enough to support you without a drastic downgrade in lifestyle. Say you are a 65-year-old who has saved four times your $100,000 salary, or $400,000. To reduce your chances of outliving that money, you should count on withdrawing only between  4% to 5% of that amount each year, or $16,000 to $20,000.  (To see how much you need to save for retirement, cnnmoney.com's retirement calculator can give you a rough idea.)

Social Security boosts that income, but the higher your salary pre-retirement, the less it helps afterward. For the lowest-paid individuals, according to one study, Social Security replaces 71% of income; for the highest-earning workers, it replaces only 31%. If you're the 65-year-old retiree in our example, a simple Social Security calculator estimates you'll receive $24,000 a year in benefits; adding in withdrawals from savings brings your income to around 40% to 44% of the pre-retirement level. Not all that retirement income is taxable, but it's still a big drop. And remember that Watson Wyatt's estimate of people's retirement savings is based on 2007 wealth levels; the recent market downturn has undoubtedly reduced the ranks of households that are successfully saving for retirement. (To get an estimate of your Social Security income, try this tool.)

All of which makes retirement security a critical issue that the Washington has yet to confront. Right now President Obama is grappling with a stalled health care plan and controversial financial reforms, among other issues. But judging by the one measure he has put forward, he seems to support only incremental change: His  automatic IRA plan would require employers that don't currently offer a retirement plan to automatically enroll workers in an IRA. (They could opt out.)

But that proposal doesn't address the real causes of the crisis, according to many economists, who say do-it yourself  plans like 401(k)s and IRA burden investors with too much risk and fail to deliver reliable retirement income. Some recommend crafting a universal retirement savings plan instead that would spread risk and responsibility among workers, employers and the government.

Even many supporters of the current system urge broader reforms. Says Christian Weller of the Center for American Progress: "The three-legged stool of retirement — public pensions, employer pensions and individual savings — is still intact, but it does need to be strengthened." He suggests more automatic features individual retirement accounts that would make them look more like pensions, as well as offering incentives for workers to stay on the job longer.

Clearly, given the pace of change in Washington, any major reforms, if they ever happen, are a long way off. Meanwhile, would-be retirees will need to save as much as they can and work longer they planned. That doesn't bode well for the American retirement dream.

What do you think should be done to rescue the retirement?

Ever since President Barack Obama proposed his wide-ranging financial reforms last month,  investors have been wondering how hard he will push for his plans. So far the White House has kept up the pressure, but opposition is mounting. And it's far from clear that Obama is prepared to fight what increasingly looks to be a two-front battle.

First, the progress update. On July 10 the Treasury Department sent legislation to Congress that would turn Obama's investor protection proposals into law. Here are the key changes the White House is seeking:

• Give the SEC power to regulate broker compensation. Right now, brokers are overseen by FINRA, a self-regulatory agency funded by the brokerage industry. This reform would ban brokers from selling high-commission products that make money for the brokerage firm, but not for customers.
• Require brokers to adopt the same fiduciary standards as investment advisers. That means brokers would have to act in the best interests of their clients. Currently brokers are only required to make recommendations that are "suitable" for their customers, even if there are less costly options available. By contrast, investment advisers, who are regulated by the SEC or the states, follow fiduciary standards.
• Restrict or limit mandatory arbitration. Brokerage customers typically must waive their right to sue in the event of a dispute. Instead, any conflicts must be resolved through arbitration — a process that investor advocates say is biased in favor of brokerage firms.
• Improve fee disclosure. Brokers would be required to provide more information about fees before selling a product. Right now most disclosures are not given to investors until after the sale is completed.

One early victory sign: a leading industry group, the Securities Industry and Financial Markets Association has announced it will support a fiduciary standard for brokers.

The White House is also putting its weight behind a new Consumer Financial Protection Agency, which would regulate mortgages, credit cards and other loan products. On  Tuesday assistant Treasury Secretary Michael Barr testified before the Senate Banking Committee in support of the agency. "There are too many agencies with consumer protection responsibilities, their authorities are too divided, and their primary missions are too distant from consumer protection," Barr said. "There is only one solution to these deep structural flaws: one regulator with one market with one mission — to protect consumers."

Other financial services industry lobbyists seeking to defend the status quo, as well as conservatives who oppose more government regulation, are pushing back hard. Edward Yingling, head of the American Bankers Association, testified before the Senate Banking Committee that  a consumer protection agency "will chill efforts to innovate and respond to consumer demand." And Peter Wallison of the American Enterprise Institute argued that the agency  "reflects a paternalistic desire on the part of elites to control and limit others’ choices while leaving themselves unaffected."  

On the other side of the philosophical divide, some critics say that the White House isn't working hard enough to overcome opposition resistance to a new consumer protection agency, while investor advocates are calling for even stronger fiduciary protection.  

And on Wednesday, an investor coalition that includes two former SEC chairmen, former chair of the Commodity Futures Trading Commission Brooksley Born, and money managers Bill Miller and Jeremy Grantham, issued a report that attacked Obama's plan to reorganize federal agencies on several counts, including awarding risk oversight to the Federal Reserve. As the report put it, the Fed's credibility has been "tarnished" by its "easy credit policies" and "lax regulatory oversight." Instead, the group recommends establishing a  Systematic Risk Oversight Regulator, which would have a staff appointed by the president and confirmed by the Senate.

It looks to be a long, hot summer in Washington.

What do you think of Obama's financial reform proposals — will they make life better for consumers and investors?

When you start searching for that perfect college for your child, you might think there's plenty of information to help you with your decision. Just for starters, every college has a website that will give you all the essentials.

Take Stephens College, a private, four-year women's school in Columbia, Missouri. A quick tour of its website will tell you that the college offers more than 50 major and minors, everything from English to event planning to equestrian science. Class sizes average just 13 students. Annual costs total $32,250, but nearly all students get some kind of financial aid. And the campus looks nice.

But what you  won't see without diligent searching is that half of Stephens students fail to graduate, even after six years. Not to pick on Stephens, which does mention that statistic deep in its website. Point is, little of the data that colleges provide really tell you much about the value of your investment: the quality of the education, the experience of the students, or how the graduates fare later in life. Instead parents have long accepted the value of the diploma on faith. And many assume that a college that charges $50,000 a year will give their child a better education than one that charges $25,000.

That may be about to change. As tapped-out families realize they can no longer borrow more and more for expensive colleges, they are increasingly focusing on lower-priced schools.  As two college officials recently warned, higher education may be the next bubble to burst. Many experts are even questioning the value of a college degree in an economy where B.A.s are competing, often unsuccessfully, with high school graduates and those with vocational training.

All of which may give momentum to long-standing efforts to improve higher education accountability, which is something that colleges have successfully resisted for years. (Ironically, these same schools have demanded increasing amounts of information about applicants and their parents' ability to pay.) As Kevin Carey, policy director at Education Sector, noted in a recent interview, "Families need more disclosure about value of the education their money is buying, and the federal government should encourage colleges to make this information transparent."

Truth is, many colleges do a poor job at graduating well-educated students. A recent study by the American Enterprise Institute found that on average four-year colleges graduate fewer than 60% of their students with six years. And there were wide differences among all categories of schools; even for the most competitive colleges, average graduation rates differed by 13 percentage points. (To find out the graduation rates for many four year colleges, go to collegeresults.org.) Other studies have found that good students who attended less prestigious colleges ended up earning the same as those who went to brand-name schools.

It wouldn't be that hard to provide data about educational quality, since schools compile most of it anyway. They just keep it private, which is curious considering that most colleges are public institutions or or least partially funded by taxpayers. The National Survey of Student Engagement gathers loads of data on how they spend their time in school and how they feel about their education.The College Learning Assessment tests students' ability to reason analytically and solve problems during their academic career. As for student outcomes after graduation, well, most colleges keep tabs on their alumni for fundraising purposes. So it's time that they shared some of that information with tuition-paying families.  And who knows? A little more disclosure might improve the quality of higher education and even slow the rate of tuition hikes.

Tell us, what information would you like colleges to provide?

The sweeping financial reforms President Obama announced today would bring about one important victory for consumers — a new financial product safety commission.

As described in a Treasury Department white paper, the Consumer Financial Protection Agency (CFPA) would have jurisdiction over credit cards, mortgages and other payment products, which were previously regulated by various banking agencies. The agency's mission would be to ensure that consumers have a clear understanding of the financial products they use, as well as to protect them from abusive or unfair practices.

As President Obama said in today's speech, "This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand. Consumers will be provided information that is simple, transparent, and accurate. You'll be able to compare products and see what's best for you."

Consumer advocates are hailing the proposed agency. "By setting up a single consumer financial protection agency, the administration is ensuring that the same rules will apply to similar products across all financial institutions," says Kathleen Day, spokesperson for the Center for Responsible Lending. "Companies will not be able to shop regulators for the most favorable treatment." States would be free, however, to make laws even stricter than federal rules.

The CFPA has already received support from two influential Congressmen — Sen. Chris Dodd (D.-Conn.) and Rep. Barney Frank (D.-Mass.), who both chair key financial committees. Still, the proposed reforms  face stiff resistance from Republicans in Congress, as well as from financial services lobbying groups. The American Bankers Association, for one, has announced its oppposition.

Still, if Obama's proposals are enacted, they could make a big difference to your pocketbook. Here's a quick look at how you might benefit:

Mortgages: To make consumer choices easier, all lenders would be required to offer a "plain-vanilla" mortgages with simple terms and pricing along with other financial products. Consumers would also be entitled to receive clear disclosure about their mortgage, including the risks and benefits. Prepayment penalties would be restricted or banned.

Mortgage brokers would have to ensure that the products they sell are affordable to borrowers, as well as avoid conflicts of interest. The new rules would ban "yield spread premiums" — a form of compensation from lenders that have encouraged brokers to push higher-priced loans that are less affordable for consumers. Brokers would also be paid over time based on the loan performance, rather than a lump sum at closing.

Credit. The agency would regulate forms of consumer credit that previously fell through the cracks, such as overdraft protection plans, according to the White House proposal. For example, the CFPA might prohibit charging for overdraft coverage unless the consumer has opted in to the plan.

Help for low-income families. A key mission for the new agency would be to enforce the Community Reinvestment Act and fair lending laws. This would ensure that low-income communities have access to financial services, lending and investment.

Tell us, what do think of the notion of a Consumer Financial Protection Agency?

Even as President Barack Obama unveils his financial regulatory reform proposals, critics are hammering the weaknesses in his plan—everything from continued reliance on ineffective federal agencies to setting up a dubious council of regulators to the  too-big-to-fail bank problem.

Still, there is some praise for one of Obama's proposed reforms — the creation of a consumer financial product safety commission that would monitor the marketing of mortgages, credit cards and other loan products. The agency would take power away from bank regulators, who have proven to be more focused on keeping banks running than protecting consumers. The notion of a financial product safety commission was first proposed by Elizabeth Warren, a former Harvard law professor and now chair of the TARP Congressional Oversight Panel.

Sounds good. But there's a crucial element missing: some form of protection for small investors, not just borrowers. After all, the victims of the financial meltdown included millions of middle-class Americans who were trying to save for retirement and the children's college educations. Many were poorly informed about the risks in their investments by their brokers, insurance agents and fund companies.

As first conceived, the financial products safety commission would have played an investor protection role by regulating a wide range of financial products, including mutual funds and possibly annuities. Along the way, however, the idea of giving the new agency authority over investments was scrapped. Pressure from financial services lobbyists was clearly one reason. But mostly, the Obama administration has kept its focus on the causes of the market meltdown, which include too much consumer borrowing.

That leaves the chief responsibility for investor protection with the Securities and Exchange Commission, which has famously been asleep at the switch. Just ask anyone who invested with Bernie Madoff.

Still, buried deep in the 89-page White House proposals are several intriguing investor protection reforms. The most important: requiring financial advisers and brokers to follow the same strict  "fiduciary" standards.

To understand why this notion is so revolutionary, you have to realize that brokers and financial advisers don't follow the same rules right now. Financial advisers are regulated by the SEC, as well as as the states. And they must meet tough fiduciary standards, which require them to put the client's interest first. Brokers are regulated by FINRA, a self-regulatory agency funded by brokerages, which only requires them to offer products that are "suitable" for the clients, without mentioning conflicts of interest. Most investors don't know the difference.

Question is, will the SEC really follow through on the White House reforms? Since becoming SEC chair earlier this year, Mary Schapiro has promised that the agency will take a more active role in watching out for investors. But the record is mixed. On Thursday June 18, for example, the SEC will hold joint hearings with the Labor Department on problems with target-date retirement funds, many of which shocked investors with their losses in the meltdown. Schapiro has said she favors improved disclosure of target fund risks.

But the SEC shelved reforms of mutual fund 12(b)-1 fees, which were designed to pay for marketing for small funds but have become de facto sales loads. And efforts to ensure brokers and financial advisers follow the same standards have been bogged down for years, with many brokers lobbying to remain under the FINRA.

Still, Barbara Roper, a longtime investor advocate with the Consumer Federation of America, is hopeful. "For decades it's gotten worse and worse for investor protection." she says. "This is the first time I've seen signs that it may move in the other direction."

What do you think Obama should do to help protect investors?

When it comes to managing money, women worry a lot more than men do—and women are more likely to ask for help with their money problems.

That's the gender gap described in a recent report by Financial Finesse, a firm that operates a financial planning helpline as an employee benefit for large companies.

Among the findings: only 53% women say they have a handle on their cash flow and spend less than they make each month. By contrast, 71% of men made that claim. Only 36% of women say they regularly pay off their credit card balances in full, compared with 61% of men.

During that same period, Financial Finesse received more than twice as many helpline calls from women as from men—68% vs. 32%. More than 40% of the calls from women concerned debt problems, according to the study, compared with 36% for men. And nearly 30% of the debt-related calls involved urgent financial issues, such as foreclosure and bankruptcy.

The same gender gap can be seen when it comes to investing. Four out of 10 women say they have a general knowledge of of stocks, bonds and mutual funds, vs. 73% of men. And only 24% of women feel confident that their investments are appropriately allocated, compared with 40% of men.

So are women simply less capable than men when it comes to handling money matters? Not necessarily. Women were just as likely as men to agree that they contribute to their workplace retirement plan (86% vs. 85%). And only one third, about the same as for men, said they were uncomfortable with the amount of (non-mortgage) debt they held.

Perhaps the real issue is confidence. A 2006 survey by Harris Poll for Charles Schwab found that 48% of women, twice as big a percentage as men, agreed that "investing is scary for me."

Yet despite this lack of assurance, women often do better job of investing than men. As a 1999 study (pdf)  by finance professors Brad Barber and Terrance Odean found, women's risk-adjusted returns have beaten men's by one percentage point a year. The key reason: women trade less frequently and hold less risky portfolios, Men, by contrast, tend to be overconfident, which hurts their performance.

And despite their doubts, women, more often than not, are the ones managing the money in their households. Some 60% of women say they are responsible for budgeting, bill paying and day-to-day spending, according to a 2006 survey by Money, although more men claim responsibility for investing and retirement planning decisions.

But with experience, and a higher income, women's financial confidence and responsibility grow. Among women with portfolios of $100,000 or more, some 63% say they are the CFO of their household and make the majority of financial decisions, according to research by Citibank's Women & Co. program. And some seven out of 10 agree that they are knowledgeable about finances and investing

That said, women do need to be concerned about their finances in ways that men don't. That's because they still face a gender income gap, with women earning less than men on average. Women also face the challenge of financing a longer retirement on that lower income, since they tend to outlive men. Poverty rates among older women are twice as high as for older men, according to AARP.

So the lessons for women are clear: take charge of your money, and unlike men, don't be afraid to ask for directions when you need them.

Sometimes a great notion just doesn’t live up to its promise.

That’s certainly true for target-date retirement funds, which are all-in-one portfolios that automatically shift to grow more conservative by your retirement date. A staple of 401(k) plans—and the default option for most new  investors—many target funds underperformed badly in the market meltdown. The typical 2020 portfolio dropped 30% last year. Worse, many shareholders in 2010 funds, who were poised to retire, got hit with similar losses.

Question is, who’s going to fix target-date retirement funds, and how?

Cue the federal government. On June 18 a hearing on target-date funds will be jointly held by the Labor Department and the Securities and Exchange Commission, which may eventually lead to new rules for these investments.

According to SEC chairman Mary Schapiro, who laid out the agenda for the hearing before a House financial services subcommittee earlier this week, regulators will examine the different asset mixes held by target date funds, which led to widely varying results. Among  2010 funds, Schapiro noted, returns last year ranged from -3.6% to -41%. The SEC and Labor Dept. will consider "whether additional measures are needed to better align target-date funds' asset allocations with investor expectations,"  Schapiro said.

Regulators will  also look closely at whether a target-date fund’s name might be "misleading or confusing to investors," Schapiro said. Not that there’s much question about investor confusion. One recent survey (pdf) found that 62% of investors polled thought “investing in a target-date fund means you will be able to retire on the target date.”

That would seem an obvious conclusion. But instead fund companies assume you will keep your money in your target fund for another two or three decades after retirement, instead of cashing out immediately. So the funds often hold a large stake in stocks, anywhere from 40% to 70% of the portfolio, until the retirement date, only then downshifting to bonds and cash.

Why assume such a long investing timeline? For one thing, higher stock allocations enable  fund groups to tout better performance records, since historically (if not lately) stocks have  delivered higher returns than bonds. The strategy is also a way to make up for the poor savings habits of 401(k) participants, since many fail to contribute enough to build adequate nest eggs.

Of course, taking greater risks to chase higher returns can easily backfire—just look at last year. As one would-be hearing witness, Joseph Nagengast of Target Analytics, wrote in his comments to the SEC (pdf), “If a fund labeled 2010 is really targeted to ‘land’ at 2040, it should be re-labeled as a 2040 fund.” (You can read comments from other experts seeking to testify at the SEC's website.)

If any reforms do result from these hearings, they would likely focus on improved disclosure of target-date risks. But regulating asset allocation is more difficult. Even financial experts disagree about the proper portfolio mix of stocks, bonds and other investments. Will a government agency be a better judge?

Still, it's clear by now that these investing choices should not be left up to the fund companies that market target funds, or employers, who aren't financial experts. The best solution, as some 401(k) critics have pointed out,  would involve guidance from independent fiduciaries, whose only concern is the interests of the fund shareholders—perhaps a federal retirement board should take on the task, as Vanguard founder John Bogle has suggested (pdf).

Meantime, a few fund groups are seeking to get ahead of any federal regulations by making their own changes. Schwab announced last month that it was reducing the amount of stock held by its target-date funds. Its 2010 portfolio, for example, shifted from a 50% stake in stocks to 43%.  Other firms that have made similar fixes include Aim and OppenheimerFunds, according to Financial Research Corp.

It's a start.

If you don't look too closely, you might think it's 2007 all over  again.

Thanks to the recent bull rally, foreign stock markets are racking up double-digit returns. The MSCI EAFE  index, a benchmark of developed nations, soared 32% in the three months ending May 29. Third-world nations, meanwhile, have trounced those gains, with the MSCI Emerging Markets index surging 56%. Those numbers make our home-grown returns looks comparatively anemic—the S&P 500 is ahead by just 25.8%.

The overseas performance edge should be no surprise, given the troubled U.S. economic forecasts. Ultrabearish economist Nouriel Roubini expects the U.S. to remain in recession this year; and for the next two years, he sees only a weak recovery. Meanwhile emerging markets economies, such as China and Brazil, are expected to grow by as much as 10% this year. The MSCI BRIC index, which tracks the booming economies of Brazil, Russia, India and China, soared 60% during the rally.

Even faster growth is expected in so-called frontier markets, which are smaller, less developed nations that don't qualify even for emerging markets status. (For more on frontier markets, see this story).  The MSCI Sri Lanka index is up 80% over the past three months, while Romania has skyrocketed 110%. Franklin Templeton's Mark Mobius, considered the dean of emerging markets investors, has said he is putting more of his personal money into frontier markets (subscription req.).

Many retail investors are way ahead of him. In the first four months of this year, nearly $8 billion in new cash flooded into emerging markets funds, according to Financial Research Corp., even as investors pulled money out of U.S. and other foreign stock funds.

If you think you've seen this movie before, you have. Big surges in emerging markets have invariably led to big busts, which are usually far worse than domestic losses. The MSCI emerging markets index plunged 55% in 2008 vs. 37% for the S&P 500. This year's blistering run-up, though it does not erase those losses, is  reason for caution. As noted bear Jeremy Grantham announced at a Morningstar conference last week,  "you can bet on" a bubble forming in emerging markets stocks.

One reason for the big swings is that investing in emerging markets is, to a large extent, a bet on commodities. After all, production of raw materials, such as oil, precious metals, and the like, is the main engine for many of these growing economies. The typical Latin American fund holds more than 40% of its portfolio in energy and industrial material stocks, according to Morningstar.com. The top holding, at 26% of assets, is oil giant Brazilian Petroleum Corp. Volatility, anyone?

None of which means you should avoid emerging markets altogether. But if you don't want a repeat of last year's losses, invest carefully.  Most advisers recommend keeping  only  5% to 10% your portfolio in these markets. If you haven't jumped in already, consider dollar cost averaging, so you can take advantage of any downturns by buying more shares. And if you've already invested, now may be the time to take some profits.

After losing nearly half its value in 2008, Fidelity Magellan (FMAGX) is finally regaining its stride.  Since the start of the year through May 21, Manager Harry Lange has steered the $21 billion fund to a 13% gain. That return beats the Standard & Poor's 500 index by a whopping 13.5 percentage points, according to Morningstar, which places Magellan in the 10% of its peers.

These are short-term numbers, of course, but the comeback says a lot about Lange's dedication to his strategy. A growth- style investor, he seeks out stocks that are likely to deliver rapidly increasing earnings, but he prefer to buy them at bargain prices. So last year, when the market slammed many of his favorite technology stocks, such as Corning (GLW) and Cisco (CSCO), he saw an opportunity.

"I felt the market had overreacted," said Lange in a recent interview. "These were industry leaders that were selling products that people wanted, so I doubled up as the market went down." So far this year, Cisco has gained 11% and Corning has soared 44%.

Lange still likes tech—the industry recently accounted for a hefty 24% of the fund's portfolio. In addition to Corning and Cisco, the fund's other top tech holdings include Apple (AAPL) and Nokia (NOK). Says Lange. "People around the globe are still buying the latest smartphones and gadgets."

A go-anywhere investor, Lange recently began venturing into an asset you might not expect to find in a growth fund: gold, which recently made up 7% of the portfolio. Among the larger stakes: Newmont Mining (NEM) and Goldcorp (GG). "The money being pumped into the economy as a result of the economic stimulus is likely to lead to inflation," says Lange, "or certainly a lot of inflation fears."

Over the past year Lange has cut back on some former favorites, such as alternative energy—"it's hard to see strength in this sector near term, given the deficit and the lower cost of conventional energy"—and financials. Last year his bets on AIG and Wachovia helped drag down the fund to a 49% loss.

But Lange isn't cutting out financials completely—the fund still holds a 10% stake, with J.P. Morgan (JPM) among the top picks. In 2009 these stocks have helped returns,  Lange says, adding, "The surviving investment banks will gain market share, and they will earn better spreads than when there was lots of competition."

Will Lange's strategy continue to work? That's impossible to say. But it's clear that Lange is doing what he was assigned to do—restore Magellan to the adventurous growth fund it was under Peter Lynch. Previous manager Roger Stansky had turned the fund into an index-hugger, which led to mediocre returns.

Magellan shareholders aren't the only ones with a lot riding on the Lange's success. Fidelity Investments does too. Magellan, after all, was once Fidelity's flagship fund, with more than $100 billion in assets. That was back in 2000. The current flagship fund, Fidelity Contrafund (FCNTX), run by Will Danoff, is up less than 2% this year; and its assets have fallen from more than $80 billion in 2007 to just $48 billion.

All of which has led to a big loss of market share for Fidelity. And it casts doubt on the future of its gun-slinging stock-picking style, which worked so well in the '80s and '90s. Meanwhile, investors have been pouring money into rivals Vanguard, the champion of indexing, and American Funds, with its anonymous team mangement—not to mention today's hottest-selling investment, exchange-traded funds.

Back in 2004, Fidelity ranked second in long-term assets, just behind Vanguard, according to Financial Research Corp. Now it ranks third. In response, Fidelity has launched a series of changes to its investment process, as well as an overhaul among its top executives.

These moves may help—but a long-term market rally that gives its managers a chance to shine would help even more.

Saving to pay your kid's college bills is beginning to look like a nonstop stint on Survivor: Tocantins. Tuition costs continue to outpace inflation. And public colleges, once considered the affordable fall-back choice, are no longer a sure-fire option, thanks to shrinking government support, tighter budgets and soaring applications. Add in plummeting real estate prices, which have limited home equity loans,  and the carnage in 529 college savings plans, and you would expect most parents  to be throwing up their hands in despair right now.

Not even close. In the first major survey of college savers since the market plunge, which was conducted in February by OppenheimerFunds, eight out of ten parents say that sending their kids to college is still an achievable goal—more achieveable than affording a comfortable retirement (62%).  A whopping 92%  intend to send their child to a four-year college. Nearly 80% say they want to pay 50% or more of their kids college expenses, and one out of four aim to cover 100%.

This confidence is admirable—but it's also unrealistic, if not outright delusional, given how little families have actually saved. Nearly half (43%) have stashed away less than $5,000.  Some 62% have saved less than $10,000, and nearly eight out of 10 have less than $20,000. (Parents of older kids are no more likely than those of younger children to have amassed larger amounts, the survey found.) That level of savings will barely put a dent in the average cost for four years of a public college ($60,000), much less private college ($140,000).

Despite the paltry dollars they have accumulated, parents intend to make up the gap somehow. Some 60% have continued to put away money in their college savings plans. Yet 60% also believe that scholarship money will pay a substantial portion of their kids' bills. (For a real-world take on scholarships, click here.) In a display of cognitive dissonance, eight out of 10 parents also say that it is likely they or their kids will end up borrowing—though half want to limit that debt to less than $10,000. (The average amount for graduates of four-year colleges is nearly $22,000.)

For the vast majority of families, belief in the value of a college education remains unshaken. Nine out of 10 parents agree college remains part of the American dream, and some 83% say the cost is worth it. Among the reasons: the ability to compete in the workforce (76%) and improved earnings power (64%). Some 77% of parents agreed that the election of President Barack Obama "proves that a good education makes anything possible."

All of which may be true. Still, you have to wonder: if tuition costs keep escalating and financial aid fails to keep up, in another 10 years will any middle-class family be able to save what they need to cover the costs of an Ivy-covered diploma, or even your flagship public university? Nearly one out of four parents surveyed believe that space travel will be more affordable than college by the time their youngest child graduates high school. Maybe they're not so delusional after all.