| First let's understand what a fund of funds is as I | | | | reduced fee. Fund managers want all the money |
| seriously doubt your broker has ever told you | | | | in their fund they can get as they are paid on the |
| about them. Why? Because it will take away from | | | | amount of money in the fund and not on |
| his commissions. | | | | performance. The average money manager |
| A regular mutual fund is composed of stocks or | | | | makes about $300,000 whether he makes the |
| bonds. An index funds such as the S&P500 is | | | | investor money or not. |
| composed of 500 stocks while a sector fund | | | | The type of fund an investor wants to buy is one |
| might have only 20 or 30 stocks. Almost all | | | | that goes up. Unfortunately many funds do not. A |
| mutual fund prices are figured at the close of the | | | | smart investor sells the weak fund and switches |
| market which is the price the investor pays. Plus | | | | to the strong funds. He never gets married to |
| commission unless it is a no load fund. All smart | | | | any fund because there is no such thing as a |
| investors only buy funds that do charge | | | | "good" fund. Even those with a good reputation |
| commission. | | | | have loss periods when the investor should either |
| No load funds are as good as funds that charge | | | | be in another fund or in a money market to |
| commission. Do not believe anything a broker | | | | protect his capital. |
| might tell you otherwise. All funds have expenses | | | | Brokers will tell their customers that funds of |
| that include commissions the fund must pay when | | | | funds are no good because there are extra |
| they buy or sell stock. There are management | | | | expenses the customer is paying for in each fund. |
| fees. They have overhead as does any business | | | | They also talk about the extra hidden fees. Of |
| such as rent, heat, light, salaries and etcetera. Be | | | | course they are not going to tell the good points. |
| careful of the etc. | | | | The fund of funds gives immediate diversification |
| Many mutual funds have recently added | | | | and it makes it simple for the investor. It is |
| redemption fees. A redemption fee has a charge | | | | especially attractive for those who do not know |
| of as much as 2% if the investor sells before a | | | | which funds to buy or someone who does not |
| certain time period such as 90 days to a year or | | | | have time to do research. It allows the small |
| more. This is one of the great rip-offs. They give | | | | investor to diversify among hundreds of stocks |
| you nonsense reasons for this charge, but the | | | | and many sectors. |
| real reason is to keep you from selling their fund. | | | | There are very few good fund of funds. Many |
| Mutual fund expenses usually run about 1.5% of | | | | investors like the concept of FUNDX which |
| the total amount of the fund each year. As a | | | | switches from poor performing funds to those |
| fund gets larger the expense ratio should become | | | | going up. It is also a no loads fund which makes it |
| smaller, but it rarely does. Fund managers just | | | | doubly attractive so the investor won't have to |
| increase expenses most of which goes into their | | | | make changes from poor performing sectors to |
| pockets. | | | | those becoming stronger. This is the only fund I |
| A fund of funds is a mutual fund that buys other | | | | know of that does this. |
| mutual funds. Almost always they have a special | | | | Any smart investor will investigate the fund of |
| arrangement so there is no commission or a | | | | funds before committing to a regular mutual fund. |