Funds of funds of funds of funds of funds of funds (ad infinitum)
I like investment funds because I don't have time to track my investments. The fund manager is responsible for tracking and taking decisions, and that is good because we can choose funds with good managers.
But still I am left with a very important decision to take, which is choosing the proper funds to put my money in. I also delegate that decision by investing specifically in funds of funds.
A fund of funds is an investment fund that invests in other investment funds, so the manager has the benefit of abstracting their investments into the performance of the manager of the funds. Also, this opens the door to having a share on the performance on funds that I alone would not afford (as the best funds have a very big minimum investment).
The problem then is that each layer of the "funds pyramid" adds more administration fees and performance bonuses for the administrators. if a fund makes $100 and pays a 2% fee you should get $98, but if you own an investment fund that owns the funds that made the $100 and it also charges a 2% fee, then you would get $96.04 and so on.
There are mono-asset investment funds, as the name suggests, they invest in only one asset, for example, only one other investment fund. The reason for mono-asset funds may be to gather a little bit of money from a lot of people so that they can together invest in something that one of the investors alone would not afford, like a fund with a very big deposit requirement.
Today I was in disbelief when I found an investment fund that invests in mono asset funds that invests in other funds of funds. It is even hard to describe! It is a fund with multiple mono asset funds, and each of those funds invests in exclusive and expensive funds of funds, and each of those funds of funds invests in other funds. AND EACH OF THOSE FUNDS HAS ITS OWN ADMINISTRATION AND PERFORMANCE FEES!
The way our financial world works is unbelievable...
I mean, I am still investing, but from now on I will try to be less passive and be careful to not invest in funds of funds of funds (3 or more floors). Two floors (funds of funds) is the maximum tolerance for a pyramid my mind can handle...
Investing can be a very tricky thing especially in the crypto world.
I prefer investing my money in a fund that is the source and not a pyramid type, tho it can be hard to spot but doing the right research helps.
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Funds of funds have their benefits, like high liquidity, but also has its price. I am willing to pay the price for a fund of funds, but a funds of funds of funds is too much for me. I call it financial degeneracy.
I have a considerable part of my portfolio, here in Hive, but I like leaving my fiat in funds I trust and hope to forget about it until it is time to retire.
That's a good idea 🙂
Yes I agree with you, funds of funds is a better option compared to funds of funds of funds.
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