With the 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 is the Lifestyle fund; an extremely diversified
package designed to be the 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, in the other, assets are
held through other funds.

Fidelity's Freedom 2030 is an example of the first type. It
targets a specific retirement date, and the 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 over the same period:

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

So much for perceived safety. The other Wall Street bright
idea is the fund of funds (FOF). It sounds good, but it
actually creates a double layer of costs; the cost of
purchasing the fund itself, and then the expenses of the
mutual funds the FOF purchases.

Take for example, the Enterprise Group of Funds. It shows
an expense ratio of almost 2% plus a sales charge of 4.75%
according to Morningstar. Tackon the underlying expenses
and you're paying out more than 3% a year in investment
expenses.

If you're a new investor (with less than $10k), and have your
account at a discount broker, you can add a minimum of 1%
per year in fees just for the privilege of having an account.
That brings the total up to 4% in annual expenses.

Talk about adding insult to injury.

FOFs are sometimes being touted as the only fund you need
no matter what the investment climate. So, let's compare to
see how the Enterprise fund of funds performed during the
same period as mentioned above for the Freedom funds:

Enterprise Group of Funds: -35%.

The bottom line is that no matter what type of
mutual fund you choose, or what anybody claims it will do for
you, you must be vigilant and see if it does what you were
told it would.

In investing, there is simply no such thing as
a sure thing. Sure you need to know how to recognize a good
investment. But just as important-maybe even more
important-you must know when to recognize that a good
investment idea didn't work out, cut your loss, and sell.