Do Lifestyle funds provide greater security?

Written by Ulli G. Niemann


Withrepparttar 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 isrepparttar 112682 Lifestyle fund; an extremely diversified package designed to berepparttar 112683 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, inrepparttar 112684 other, assets are held through other funds.

Fidelity's Freedom 2030 is an example ofrepparttar 112685 first type. It targets a specific retirement date, andrepparttar 112686 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 overrepparttar 112687 same period:

Fidelity Freedom 2020: -34% Fidelity Freedom 2010: -22%

So much for perceived safety. The other Wall Street bright idea isrepparttar 112688 fund of funds (FOF). It sounds good, but it actually creates a double layer of costs;repparttar 112689 cost of purchasingrepparttar 112690 fund itself, and thenrepparttar 112691 expenses ofrepparttar 112692 mutual fundsrepparttar 112693 FOF purchases.

How we eluded the bear in 2000

Written by Ulli G. Niemann


The date October 13, 2000 will forever be embedded in my mind. It wasrepparttar day after our mutual fund trend tracking indicator had broken its long-term trend line and I sold 100% of my clients’ invested positions (and my own) and movedrepparttar 112681 proceeds torepparttar 112682 safety of money market accounts. Some people thought we were nuts, but I had come to trustrepparttar 112683 numbers.

The shake out inrepparttar 112684 stock market, which started in April 2000, had all major indexes coming off their highs, violently followed by just as strong rally attempts. The roller coaster ride was so extreme that even usually slow moving mutual funds behaved as erratically as tech stocks.

By October,repparttar 112685 markets had settled into a definable downtrend, at least according to my indicators. We sat safely onrepparttar 112686 sidelines and watchedrepparttar 112687 unfolding of what is now considered to be one ofrepparttar 112688 worst bear markets in history.

By April 2001repparttar 112689 markets really had taken a dive, but Wall Street analysts, brokers andrepparttar 112690 financial press continued to harp onrepparttar 112691 great buying opportunity this presented. Buying on dips, dollar cost averaging and “V” type recovery were continuously hyped torepparttar 112692 unsuspecting public.

Byrepparttar 112693 end ofrepparttar 112694 year, and afterrepparttar 112695 tragic events of 911,repparttar 112696 markets were even lower and people began to wake up torepparttar 112697 fact thatrepparttar 112698 investing rules ofrepparttar 112699 ‘90s were no longer applicable. Stories of investors having lost in excess of 50% of their portfolio value wererepparttar 112700 norm.

Why bring this up now? To illustraterepparttar 112701 point that I have continuously propounded throughoutrepparttar 112702 90s; that a methodical, objective approach with clearly defined Buy and Sell signals is a “must” for any investor.

Cont'd on page 2 ==>
 
ImproveHomeLife.com © 2005
Terms of Use