
Tim
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Fund of Funds are often an excellent way for an investor to get complete diversification within a single mutual fund.
Any good portfolio will consist of a wide range of asset classes such as Large Cap, Mid Cap, Small Cap, International, Emerging Markets, Commodities (equities) and Bond Funds (including short and long duration as well as a mix of credit quality - High Yield being a synonym for low credit quality).
Let's suppose the optimum model for you has gold as 2% of your total portfolio, which is $30,000. That 2% would represent $600, but the Gold Fund in that fund family has a minimum investment of $2,000. That same fund family probably has a series of Fund of Fund offerings of varying risk profiles. The manager holds other, specialized funds, each focused on specific sectors in a combination that represents the entire range of the investment universe (or most of it). By choosing the one that has a risk profile that fits your emotional comfort zone, you get a balanced portfolio that is professionally managed and regularly rebalanced without having to do it yourself. |