No. of Recommendations: 3
I disagree with the 'fund of funds' approach.

This merely adds a second layer of administration, and hence, FEES! You'll essentially be hit twice for loads and/or fund management fees - once for the 'fund of funds,' and a second time for the funds that compose the original.

Do you think the manager of the 'fund of funds' is going to be a nice guy or gal and absorb the fees they must pay to buy a particular fund? I didn't think so either.

Stick with an index fund. The fees are nearly negligible, and over time that annual fee of a percent or two will eat away at your savings to a frightening amount. If you get the historical 11% a year from an S&P 500 index fund, you'll double your initial investment five times in about 32 years. For example, $1000 would grow to approximately $32,000. My math may be slightly off - running figures in my head.

If you pay two percent a year in management fees, and the fund matches the return of the S&P 500's traditional 11% a year, you'll actually make 9%. Big deal? Yep - your money only doubles four times in 32 years, and using the previous example you would only grow $1000 to $16,000. Ouch. You just gave up a down payment on a house to the investment firm.

Of course, an actively managed fund might beat the historical return of the S&P, right? Yep, they might...and historical averages show that 80% of the time they don't beat it!

Best wishes,

Mark
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement