In the latest part of our series looking at different types of mutual funds we look at fund-of-funds. Simply put, these types of mutual funds invest in other mutual funds or hedge funds. An investor investing in fund-of-funds is trying to build a broadly diverse portfolio and spread out asset allocation by investing in a variety of funds types in one. It’s possible that by investing in one fund-of-funds, an investor could invest in all of the mutual fund types we’ve outlined in our series. A more diverse portfolio also reduces risk as an investor will not be as affected by market volatility.
Along with the added reach of fund-of-funds come additional and typically higher fees. If investing in fund-of-funds be sure that the additional fees don’t overly impact your returns and your access to a more diverse portfolio.
The Nova Scotia Securities Commission does not provide investment advice. We are not advising or recommending that investors purchase the mutual funds in our posts. The posts are simply to educate investors so they can be an informed investor when making investment decisions.