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Funds 211: What to Look For in a Fund: Index Funds and Funds of Funds

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1.
An index-fund manager _______.
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Buys what an index does. Index-fund managers are passive investors: They buy what an index does. What they like or don't like doesn't factor into what gets bought or sold.
2.
Which is not an advantage of indexing?
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Great stock-picking. Index funds are generally low-cost and predictable. Index-fund managers don't pick stocks in the traditional sense, though.
3.
How have some mutual fund families eliminated the double fees found in funds of funds?
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They offer funds of funds that invest only in their own funds. Some of the larger fund families charge you fees for the underlying funds but not for the funds of funds.
4.
Funds of funds directly buy _______.
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Other mutual funds. A fund of funds literally owns other mutual funds. Those funds may own stocks, bonds, or both.
5.
The main drawback to most funds of funds is _______.
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Hidden costs. Funds of funds usually offer access to lots of other funds for a low minimum; they also limit paperwork. But a fund of funds can have high hidden costs, charging shareholders expenses on top of the expenses of the funds it owns.