In case you were in a comaduring 2008, I have the sad task of bringing you up to speed on one of the worst years for investors since the Dark Ages. If, on the other hand, you were up and moving around during 2008, you likely would have preferred to be in a coma.

How bad was it? Well, that really depends on what your portfolio contained. If you owned only bonds and cash, you probably had the last laugh. In fact, cash trumped all the major U.S. equity indexes for the 10-year period that ended on Dec. 31, 2008. Cash is the asset equivalent of Rodney Dangerfield. It doesn't get much respect, which is too bad because cash is a wonderful portfolio component. How much to have is an individual judgment call, but a 10% minimum might be a good idea.

But if your portfolio was full of equities, like most investors', it didn't really matter what asset classes you had. Nearly all were gutted. Let's run through the one-year returns of the major equity asset classes (see "Equity Meltdown") to assess the damage.

The S&P 500 lost 37%, its worst one-year return since 1970. The Russell 2000's 33.8% drop was the worst since its inception in 1979. The 43.4% loss posted by the EAFE Index was the worst since 1970. The Dow Jones Wilshire REIT was down 39.2%, the worst one-year return since its inception in 1978, and the 46.5% drop of the S&P Goldman Sachs Commodity Index was the worst since its inception in 1970.

You get the drift. After examining the returns of the major equity asset classes, you can see that there were precious few places to hide in 2008. This wasn't a bear market, it was wholesale slaughter.

And yet, for much of the year, it was only moderately depressing. The real damage occurred during the fourth quarter. That is hardly comforting, because it illustrates how fast things can go from moderately bad to horrible.

In this article, we do our annual comparison of equity and equity fund performance. Was one less bad than the other in 2009? The answer to this question, as in years past, depends on the performance of one particular asset class: large-cap stocks.

Which Was Worse?

Let's specifically analyze the meltdown on this side of the pond. The rest of this article will focus strictly on the performance of U.S. stocks and U.S. stock mutual funds.

In 2008, there were 8,020 U.S.-based companies with 12-month returns as of Dec. 31, 2008. The average return of all 8,020 stocks in 2008 was -39.6%. The median return was -52.7%, whereas the market-cap weighted 12-month return was -26.6%.

Large-cap stocks fared better—or less badly. There were 218 large-cap stocks in 2008, which lost 29.5% on average. An additional 640 mid-cap stocks lost an average of 31.3%. And 5,338 small-cap stocks were down 47.2% on average. (A total of 1,824 stocks were not assigned a capitalization category.)

Of all 8,020 stocks, 89% had a negative return. The median negative return was -58.4%. Only 11% of all U.S. stocks had a positive return in 2008, and the median positive return was 19.9%.

Perhaps U.S. stock mutual funds did better than individual U.S. stocks? It all depends on how you look at it.

There were 2,781 U.S. stock funds that had at least a 12-month return as of Dec. 31, 2008. These 2,781 funds could not have more than 15% of their portfolio in cash, bonds or non-U.S. stocks. These filters were designed to isolate U.S. equity funds, but they also screened out inverse funds (funds that short equities and hold large offsetting positions in cash). This group of 2,781 domestic stock funds included large-cap, mid-cap, small-cap, value, blend, growth, actively managed and passively managed index funds.

The median return in 2008 for all 2,781 stock funds was -38.1%, which was "less bad" than the median return of -52.7% for stocks. However, 99.8% of all equity funds in this analysis had a negative return in 2008 compared with 89% of all 8,020 stocks that had a negative one-year return.

Among stocks with a negative return, the median one-year return was -58.4%. Among equity mutual funds with a negative return (all but five of them), the median negative return was -38.1%. Recall that the filters used to select the mutual funds in this study eliminated exotic inverse funds, many of which had positive returns in 2008.

The Large-Cap Factor

Simply put, almost all U.S. equity funds (specifically 99.8%) had large negative returns in 2008, while 11% of all U.S. stocks (881 to be exact) found a way to produce a positive return in the midst of an equity ice age. It may seem odd that a higher percentage of mutual funds had a negative return in 2008 than individual stocks. Actually, it's quite logical.