Fund of Funds Question

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chris319
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Fund of Funds Question

Post by chris319 »

My cousin is in an awful mutual fund through his employer. It calls itself a "fund of funds". Its main holdings are other mutual funds from the same company. This fund has an expense ratio of 1.46%.

My question is, do the expense ratios of the other funds held by the fund in question add to its expense ratio? My instinct says they do, that the ER of the fund in question is the sum (or product?) of the ER's of the other funds it holds. It seems to me this would in effect be double dipping.

Am I correct in my thinking about this?

The fund has a CAGR of about 5, which is why I want him out of it.

Thank you.
Financial decisions based on emotion often turn out to be bad decisions.
dsasdg
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Re: Fund of Funds Question

Post by dsasdg »

Just leave it
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NewMoneyMustBeSmart
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Re: Fund of Funds Question

Post by NewMoneyMustBeSmart »

chris319 wrote: Wed Apr 21, 2021 9:35 pm Am I correct in my thinking about this?
You are likely correct in thinking about this. More importantly, what does your cousin think?
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JoMoney
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Re: Fund of Funds Question

Post by JoMoney »

Sometimes "fund of funds" layer additional fees on top of the underlying holdings, sometimes the stated ER is that of the underlying funds and there is a waiver for any fees incurred for the "fund of funds" (Vanguard does this for some of it's funds.)

You haven't provided any information (like name or ticker) of the fund you're talking about, so there's no way for anyone to speak about it specificly.. only generalize, and it's not consistently the case one way or the other. Sometimes there's additional fees, sometimes not.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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chris319
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Re: Fund of Funds Question

Post by chris319 »

what does your cousin think?
My cousin is young and innocent in the ways of finance :) He is just shy of 40 so he has plenty of years ahead of him. I don't want those to be wasted years in terms of preparing for his future, so I am mentoring him.

Years ago somebody persuaded him to take a flyer in his Sharebuilder account on a stock called "Verso Technologies". He didn't stay on top of it as the company sank into bankruptcy, with the shares finally vanishing from the face of the Earth. Sharebuilder became ING, then Capital One and now E-Trade. His account was finally escheated (a new word to me) and the assets, including the non-existent shares, wound up with the State Controller. I have told him that the shares probably no longer exist but he is trying to get them back anyway. Like I said, young and innocent.

Apart from his employment account, I finally managed to get him into a proper index fund so that is a big step forward for him.
You haven't provided any information (like name or ticker) of the fund you're talking about, so there's no way for anyone to speak about it specificly.. only generalize, and it's not consistently the case one way or the other. Sometimes there's additional fees, sometimes not.
Not to challenge you, but what additional information would you get if you knew the ticker symbol?
Financial decisions based on emotion often turn out to be bad decisions.
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JoMoney
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Re: Fund of Funds Question

Post by JoMoney »

chris319 wrote: Wed Apr 21, 2021 10:57 pm....
Not to challenge you, but what additional information would you get if you knew the ticker symbol?
Someone who might be familiar with the fund might reply with their experience with it.
Someone could lookup up the fund and find it's prospectus, annual reports, and other fund disclosures, that would likely state explicitly whether the the "fund of funds" stated expense ratio is layered on top of the underlying funds expenses, or if the stated ER includes the underlying fund expenses.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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chris319
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Re: Fund of Funds Question

Post by chris319 »

JoMoney wrote: Thu Apr 22, 2021 7:46 am Someone who might be familiar with the fund might reply with their experience with it.
Someone could lookup up the fund and find it's prospectus, annual reports, and other fund disclosures, that would likely state explicitly whether the the "fund of funds" stated expense ratio is layered on top of the underlying funds expenses, or if the stated ER includes the underlying fund expenses.
You don't need firsthand experience with it; just look up the data on Yahoo! Finance. You will see that the expense ratio is high at 1.46%. Or you can go to portfoliovisualizer and compare it to the fund of your choice.

It won't change my conclusion about the fund but since you're curious, the symbol is JTSCX.
Financial decisions based on emotion often turn out to be bad decisions.
snailderby
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Re: Fund of Funds Question

Post by snailderby »

Looking at the summary prospectus for JTSCX (https://am.jpmorgan.com/JPMorgan/TADF/4 ... e=JPMorgan), it appears that the 1.46% expense ratio includes the underlying funds' fees and expenses.
Last edited by snailderby on Thu Apr 22, 2021 8:16 pm, edited 1 time in total.
secondopinion
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Re: Fund of Funds Question

Post by secondopinion »

chris319 wrote: Wed Apr 21, 2021 10:57 pm My cousin is young and innocent in the ways of finance :) He is just shy of 40 so he has plenty of years ahead of him. I don't want those to be wasted years in terms of preparing for his future, so I am mentoring him.

Years ago somebody persuaded him to take a flyer in his Sharebuilder account on a stock called "Verso Technologies". He didn't stay on top of it as the company sank into bankruptcy, with the shares finally vanishing from the face of the Earth. Sharebuilder became ING, then Capital One and now E-Trade. His account was finally escheated (a new word to me) and the assets, including the non-existent shares, wound up with the State Controller. I have told him that the shares probably no longer exist but he is trying to get them back anyway. Like I said, young and innocent.
I must be very young and well-versed in finance. Of course, it helps to be self-directed since the beginning of time; I have saved a massive percentage of my money since I was little, even to the point in which I was given money only if I would actually spend it.

That being said, I would either convince him to hold funds that keep him out of the market; or train him to do that himself. Sounds like you have your hands full.
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goingup
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Re: Fund of Funds Question

Post by goingup »

Rarely do funds in 401ks have loads. Loads in employer plans are usually waived.

I have never seen a "fund of funds" layer ERs. The net ER is what you pay.

The ER you see listed in Yahoo Finance is not necessarily the same as the ER in a 401K plan. Sometimes it's more in an employer plan, and sometimes it's less.
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chris319
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Re: Fund of Funds Question

Post by chris319 »

It gets worse. He originally sent me a statement from 2019. He then sent me a current statement. His big-shot advisers had liquidated his old fund and put him in 10 different ones which are all dogs, some with CAGR's less than 3 :oops:
Financial decisions based on emotion often turn out to be bad decisions.
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