Hybrids make investing easy, reasonably profitable

Your Money

April 25, 2004|By Gregory Karp

For the ultimate in lazy-but-prudent investing, there are ways to buy a single mutual fund, called a hybrid.

That's it: one fund.

These hybrid funds contain stocks and bonds and sometimes cash, all managed by a professional. Even the conservative hybrid funds have had respectable returns, averaging 10 percent annually over the past decade, said Paul B. Farrell, author of The Lazy Person's Guide to Investing. These hybrids come in different flavors.

Here are two types:

Balanced funds: These keep a prescribed balance between stocks and bonds - 60 percent in stocks and 40 percent in bonds, for example. Popular choices are the Vanguard Wellington fund, the Fidelity Puritan fund and the Dodge & Cox Balanced fund. Your allocations will never get out of whack.

Life cycle funds: You buy these funds based on your age, and when you expect to retire. They have a mix of investments that get more conservative as you grow older, a smart financial strategy. For example, Fidelity's Freedom funds have such names as Freedom 2020 and Freedom 2030. The numbers represent the years closest to when you expect to retire.

One warning with hybrids is that because they are professionally managed, they tend to have somewhat high expenses, which will lower overall returns, Farrell said. Hybrids with expense ratios higher than 1 percent are pricey, with 3 percent being outrageous.

Find the fees and expenses of any mutual fund from the company or an online financial site, such as Yahoo Finance, http://finance.yahoo.com, or Morningstar, www.morningstar.com.

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