The Power of Fund of Funds

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The seemingly skyward direction of the Dow Jones Industrial Average (DJIA) has been received with mixed emotions. Some investors are elated at the improved market values of their portfolios, while others are viewing the trend with a bit of fear and trepidation. These fears are not unfounded. Many fortunes were lost in the financial fiasco of 2007, and some investors fear that the historic highs recently reached by the Dow have insufficient basis in strong economic data to be considered seriously.

Yet, with interest rates still at historic lows, investors face a common challenge: how is one to maximize earnings while minimizing risk to the principal investment? The answer may lie within an investment product known as “fund of funds.”

According to Scott Reiman, Founder and President of Hexagon Investments in Denver, fund of funds investing is growing in popularity because it does not channel all investment dollars into a single fund. It effectively diversifies the investment funds to protect the investor from losing money to a single underperforming fund.

While direct investments remain popular, those who have a higher sensitivity to risk may do well to look into the feasibility of fund of funds investing.

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