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Article Title:
Do Lifestyle Funds Provide Greater Security?

Article Description:
With the stock market stubbornly refusing to settle down and 
smooth 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...

Additional Article Information:
483 Words; formatted to 65 Characters per Line
Distribution Date and Time: Fri Jan 27 03:57:17 EST 2006

Written By:     Ulli G. Niemann
Copyright:      2006
Contact Email:  mailto:[EMAIL PROTECTED]

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Do Lifestyle Funds Provide Greater Security?
Copyright © 2006 Ulli G. Niemann

With the stock market stubbornly refusing to settle down and 
smooth 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 diversified package 
designed to be the single fund in an investor's portfolio.

There are two general types of these funds, in which assets are 
spread out across a wide range of stocks and bonds. In one, 
securities are held directly, in the other, assets are held 
through other funds.

Fidelity's Freedom 2030 is an example of the first type. It 
targets a specific retirement date, and the cash and bond stakes 
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 lost 39% 
(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 bright idea is the fund of funds (FOF). It 
sounds good, but it actually creates a double layer of costs; the 
cost of purchasing the fund itself, and then the expenses of the 
mutual 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. Tack on 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 of mutual fund you 
choose, or what anybody claims it will do for you, you must be 
vigilant and see if it does what you were told it would. In 
investing, there is simply no such thing as a sure thing. Sure 
you need to know how to recognize a good investment. But just 
as important—maybe even more important—you must know when to 
recognize that a good investment idea didn't work out, cut your 
loss, and sell.

© Ulli G. Niemann

Ulli Niemann is an investment advisor and has been writing 
about objective, methodical approaches to investing for over 
10 years. He eluded the bear market of 2000 and has helped 
countless people make better investment decisions. To find 
out more about his approach and his FREE Newsletter, please 



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