How finance folk use it
A fund of funds is a type of pooled fund that doesn’t invest directly in assets such as stocks or bonds. Instead, it puts the investors’ money in other funds (called target funds), which are the ones that own such assets.
A specific type of fund of funds, the feeder fund, invests in only one target fund. Regular versions will put money in more than one target fund.
Is it good or bad?
This type of fund makes investing in large funds with high minimum investment amounts easy. That’s because a fund of funds usually requires a lower amount to get started.
Also, since your money will go into more than one fund and so gets spread out across many different assets, you may be able to achieve widespread diversification to manage your risk a little more.
Many of these funds choose target funds that have an above-average potential for growth. This can make a big difference for the success of your goal.
What it means for you
If you’re just starting out on your investing journey, a fund of funds could be the right start for you.
With its advantages of affordability, diversification, and growth potential, it might be a good choice for going after your goal.
