With the stock market stubbornly refusing to settle down and smooth out, Wall Street has been scrambling to come up with "product" they can sell to gun shy investors.
One such new concept is the Lifestyle fund; an extremely diversified package designed to be the single fund in an investor's portfolio.
There are two general types of these funds, in which assets are spread out across a wide range of stocks and bonds. In one, securities are held directly, in the other, assets are held through other funds.
Fidelity's Freedom 2030 is an example of the first type. It targets a specific retirement date, and the cash and bond stakes rise as that date approaches.
This type of fund has created a perception among investors that its value will not drop and that it is safe. But, in fact, these are no safer than a standard mutual fund.
Since we sold all of our investment positions on October 13, 2000 and preserved our capital, Fidelity Freedom 2030 has lost 39% (through 2/21/03). Do you think that's an isolated incident?
I'm not picking on Fidelity, but here are some of their other Lifestyle funds with returns over the same period:
Fidelity Freedom 2020: -34% Fidelity Freedom 2010: -22%
So much for perceived safety.
The other Wall Street bright idea is the fund of funds (FOF). It sounds good, but it actually creates a double layer of costs; the cost of purchasing the fund itself, and then the expenses of the mutual funds the FOF purchases. Take for example, the Enterprise Group of Funds. It shows an expense ratio of almost 2% plus a sales charge of 4.75% according to Morningstar. Tack on the underlying expenses and you're paying out more than 3% a year in investment expenses.
If you're a new investor (with less than $10k), and have your account at a discount broker, you can add a minimum of 1% per year in fees just for the privilege of having an account. That brings the total up to 4% in annual expenses. Talk about adding insult to injury.
FOFs are sometimes being touted as the only fund you need no matter what the investment climate. So, let's compare to see how the Enterprise fund of funds performed during the same period as mentioned above for the Freedom funds:
Enterprise Group of Funds: -35%.
The bottom line is that no matter what type of mutual fund you choose, or what anybody claims it will do for you, you must be vigilant and see if it does what you were told it would. In investing, there is simply no such thing as a sure thing. Sure you need to know how to recognize a good investment.
But just as important-maybe even more important-you must know when to recognize that a good investment idea didn't work out, cut your loss, and sell.
About The Author
Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped hundreds of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: http://www.successful-investment.com; http://www.successful-investment.com
disinfecting cleaning services Arlington Heights ..The basis of diminishing return discussions surround such simple notions;... Read More
Intervention. Now don't let that big word scare you. The... Read More
How do you invest? What do you really pay? At... Read More
Are you one of those many people who dread reading... Read More
There are many good penny stock investments available, which could... Read More
If you are a baby boomer, time is not on... Read More
Are hedge funds a suitable investment for you? Hedge funds... Read More
Ever notice how behavior in one area of life can... Read More
We are already in it, but you can't see it.... Read More
With over 6,000 mutual funds available, it may be tempting... Read More
What is leverage?Here is a definition of leverage from an... Read More
Starbucks earnings are up again and so is their stock... Read More
"There is nothing more frightful than ignorance in action!" Johann... Read More
A 'stock option' is a contract between two parties giving... Read More
When you become interested in a stock or mutual fund... Read More
For the last few weeks we have seen the stock... Read More
Options trading can increase the profits you make when trading... Read More
Mutual funds are doing more and more to discourage investors... Read More
Caught in a whirlpool and being sucked under. No life... Read More
What can I expect to make my first year of... Read More
There is so much involved in developing peak performance, that... Read More
To become a successful trader you must have some kind... Read More
Have you ever thought of investing? Do you have a... Read More
I was recently interviewed for a press release through a... Read More
Every stock market investor faces one primal enemy. An enemy... Read More
bathroom cleaning service Mundelein ..All stock trading and investing methods must deal with the... Read More
What a great statement!I just heard someone use it in... Read More
(1) Stock Market is Tough Place to Make Any Money... Read More
Sidney felt sick as she looked at her latest OptionsXpress... Read More
Jack and Jill went up the hill to fetch a... Read More
Very few people, even professionals, have heard of the Dalbar... Read More
If you are going to be a winner in the... Read More
Yesterday I received my monthly issue of MONEY magazine. This... Read More
We all know the expression, "My country, right or wrong",... Read More
For years I have been saying you must have a... Read More
There is nothing more exciting than finding an undervalued stock... Read More
Is really not as important as to how you invest... Read More
Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More
There has been great condemnation recently because China has been... Read More
People are always asking me when should I sell my... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
Wouldn't it be nice if you were only in the... Read More
Suppose your position has made a big move and you... Read More
The Dow Theorycharles h. dowcharles h.... Read More
One of the main reasons many of us get into... Read More
Alfred Winslow Jones started hedge funds in 1949. He was... Read More
Do you have a financial planner? Does one of your... Read More
When you become interested in a stock or mutual fund... Read More
If you have a pension plan at work you will... Read More
A PEG ratio cannot be used alone but is a... Read More
Stocks & Mutual Fund |