Lifestyle,funds,provide,greate finance, share, loan Do Lifestyle funds provide greater security?
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With the stock market stubbornly refusing to settle down andsmooth 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 diversifiedpackage designed to be the single fund in an investor'sportfolio. There are two general types of these funds, in which assetsare spread out across a wide range of stocks and bonds. Inone, securities are held directly, in the other, assets areheld through other funds. Fidelity's Freedom 2030 is an example of the first type. Ittargets a specific retirement date, and the cash and bondstakes 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 lost39% (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 brightidea is the fund of funds (FOF). It sounds good, but itactually creates a double layer of costs; the cost ofpurchasing the fund itself, and then the expenses of themutual 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. Tackon 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 ofmutual fund you choose, or what anybody claims it will do foryou, you must be vigilant and see if it does what you weretold it would. In investing, there is simply no such thing asa sure thing. Sure you need to know how to recognize a goodinvestment. But just as important-maybe even moreimportant-you must know when to recognize that a goodinvestment idea didn't work out, cut your loss, and sell. Article Tags: Lifestyle Funds, Fidelity Freedom
Lifestyle,funds,provide,greate