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URL:  https://boards.fool.com/i-disagree-with-the-fund-of-funds-approach-this-17022526.aspx

Subject:  Re: is a "fund of funds" a good idea? Date:  4/7/2002  5:35 PM
Author:  v10mark Number:  34112 of 96307

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
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