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Mutual funds for dummies - Tyson E

Tyson E. Mutual funds for dummies - Wiley publishing , 1998. - 425 p.
ISBN 0-7645-5112-4
Download (direct link): mutualfundsfordummies1998.pdf
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Vanguard's Funds of Funds
A fund of funds is simply a mutual fund that invests in other individual mutual funds. Although the concept is not new, it has become increasingly attractive ( I to investors who are overwhelmed by the number of fund choices out there
or who want to diversify. Vanguard offers some excellent funds of funds.
Begun in 1985 — and thus the oldest of the funds of funds — the Vanguard Star fund is diversified across nine different Vanguard funds: six stock, two bond, and one money market fund. Its targeted asset allocation is 63% in stocks, 25% in bonds, and 12% in the money market fund. This fund emphasizes value more than growth. It is also very U.S.-focused, seldom holding more than a few percent in foreign stocks. The Star fund’s diversification comes cheap: The average expense ratio of the underlying funds is 0.4 percent (there’s no additional charge for packaging them together). The initial investment requirement is just $1,000 for both retirement and non-retirement accounts.
Realizing that in the case of asset allocation, one size does not fit all, Vanguard introduced the LifeStrategy series of funds in 1994. Although each of the four LifeStrategy funds draws from numerous Vanguard stock and bond
Chapter 9: Funds for Longer-Term Needs: Stock Funds 221
funds, they differentiate themselves by their target asset allocations. The LifeStrategy Income portfolio, the most conservative of the bunch, has 80 percent in bonds and 20 percent in stocks whereas the LifeStrategy Growth portfolio, at the other end of the risk spectrum, invests 80 percent in stocks and 20 percent in bonds. The asset allocations of the other two portfolios — Conservative Growth and Moderate Growth — fall in between these extremes.
Unlike the Star fund, the more aggressive LifeStrategy funds allow more exposure to international markets: up to 15 percent for the Growth portfolio. In addition, by relying more heavily on index funds than the Star fund does, the LifeStrategy funds come through with an even lower average expense ratio of 0.3 percent. Minimum initial investment is $3,000 ($1,000 for retirement accounts).® 800-662-7447.
Dodge & Cojc Balanced
This particular fund is one of the older balanced funds, having started in 1931. It wasn’t until the 1980s that Dodge & Cox started marketing and registering the fund for sale in states throughout the United States. The company has never been all that aggressive or interested in building a huge mutual fund (the fund is available in about half the states, mostly larger ones). Although never at the top of the fund heap, this fund has not had a down year since 1981.
Like Dodge & Cox itself, this fund is conservatively run, investing primarily in large-company value stocks and high-quality, intermediate-term bonds. Typically, it invests 60 percent in stocks and the rest in bonds. A small portion of the fund (less than 10 percent) may be invested overseas and less than 5 percent may be invested in junk bonds.
This fund has always been managed using a team approach, so if you like to be able to rattle off the name of a star fund manager who’s investing your money, this is not the fund for you (although you can impress others by saying that the minimum account size that Dodge & Cox normally accepts is several million dollars). This fund has an almost Vanguard-like 0.6 percent expense ratio. Minimum initial investment is $2,500 ($1,000 for retirement accounts). ® 800-621-3979.
Vanguard Wellington
Wellington is the oldest hybrid fund: It dates back to the summer of 1929 (which means that it even survived the Great Depression!). This fund typically invests about two-thirds in large-company stocks, with the other third in high-quality, intermediate- to longer-term bonds.
This fund is co-managed by Wellington Management’s Ernst H. von Metzsch and Paul Kaplan, who together have five plus decades of investment management experience. Up to 10 percent of this fund’s assets can be and often are invested internationally. Its expense ratio is 0.3 percent. Minimum initial investment is $3,000 ($1,000 for retirement accounts). ® 800-662-7447.
222 Part II: Establishing a Great Fund Portfolio
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Fidelity Asset Manager
Fidelity offers a number of hybrid funds that invest overseas as well as in the United States. They differ from Vanguard’s offerings by making more radical shifts in strategies and investments held. Fidelity is one of the few companies that has the research capabilities to allow a fund manager to invest intelligently in many different markets.
Managed by a team, Asset Manager typically has about one-half of its assets in stocks, with a healthy portion of those overseas. Most of the rest of the fund is invested in bonds (with a healthy helping of the bonds being junk).
The expense ratio is 0.8 percent annually. Minimum initial investment is $2,500 ($500 for retirement accounts). ® 800-544-8888.
Fidelity Puritan
One of Fidelity’s oldest funds (it began in 1947), this fund is managed by Bettina Doulton. Like Fidelity’s Asset Manager fund, Puritan is a worldwide hybrid fund. Puritan typically has about 50 to 60 percent in stocks that tend to be value-oriented. The fund historically has invested a fair amount in foreign stocks.
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