Filed under: Mutual funds, Money and Finance Today, Bank of America (BAC), Personal finance

How vulnerable is your mutual fund to the ongoing mortgage meltdown? In that series, BloggingStocks contributor Lita Epstein, author of more than 20 books including Trading for Dummies and The total Idiot’s Guide to Improving Your Credit Score, digs into mutual funds’ holdings looking for securities with exposure to the currently shaky credit markets.

Bank of America (NYSE: BAC) is playing a major role in the SIV bailout, even though it isn’t a major player in the sale of SIVs. whether you take a closer look at its retirement mutual fund portfolios, you can see one key reason why BAC wants to see the problem fixed. Bank of America offers a series of funds of funds for retirees. These funds of funds hold mutual fund shares in Columbia mutual funds. Columbia Total Return Bond Fund, according to its most recently posted portfolio - 3/31/07 - holds 41.8% of its portfolio in mortgage-backed securities, collateralized mortgage-backed securities and commercial mortgage-backed securities. In addition, it holds 13.9% in asset-backed securities.

I don’t know how many of these securities may be tied to the current credit mess, but that’s a huge bet on the types of securities now being questioned. An even bigger question

is why would Bank of America put 34.39% of its holdings for its Bank of America Retirement 2005 fund in a mutual fund with such a meaningful exposure to the credit mess? A retirement fund with a target instance of 2005 means that retirees are probably already depending on those funds and are already in retirement. That’s when a person wants their funds to be at the lowest risk level.

Bank of America uses that Columbia Total Return Bond Fund for a major portion of its other holdings. Bank of America Retirement 2010 fund holds 32.63% in that Columbia fund, Bank of America Retirement 2015 holds 27.82%, Bank of America 2020 holds 22.83% and Bank of America 2025 holds 17.70%.

If you are a holder in Bank of America retirement funds you may want to look elsewhere. There are many well-balanced mutual funds out there that won’t give you that type of risk exposure. The primary reason to invest using mutual funds is to get a well-diversified portfolio.

Lita Epstein is the author of more than 20 books including the “Pocket Idiot’s Guide to Mutual Fund Investing.”

Permalink | Email this | Comments

Original post by Lita Epstein

child support student loan consolidation stock market income taxes finance auto insurance investing foreclosure debt consolidation credit