Five reasons to stay away from balanced funds

Peter Hodson: On the off chance that a stranger does get the allocations of a balanced fund right for you, the allocations may no longer be appropriate in the event of a change in your personal situation.

The popularity of balanced funds seems to be on the rise, however this trend may not have investors’ best interests in mind.

Balanced funds can unnecessarily add confusion and complexity for an individual\’s investment portfolio at any given time when simplicity is often best. Here are five reasons why we do not like balanced funds.

Letting a stranger decide

Balanced funds are particularly interesting because they let a stranger (the fund manager) decide on the appropriate asset allocation for you personally.

Obviously, this manager has no idea who 99% of the individuals holding the fund are, but he/she is given the responsibility to choose a suitable mix of stocks, bonds and sometimes even geographic allocations.

This responsibility should be in the hands of either your adviser/wealth manager or else you, the retail investor, who actually understands your personal situation. Don’t defer to a person in a different city or country who has no idea what you are.

Lack of flexibility

On the off chance that the stranger does obtain the allocations of a balanced fund best for you, the allocations might no longer be appropriate in the event of a change in your financial situation.

As a result, you\’ll either have to sell the whole fund to change your portfolio and risk incurring some kind of deferred fee, or tweak the holding and sell the appropriate percentage that brings the allocations within the balanced fund in-line with your overall allocation targets.

It quickly becomes clear that portfolios holding balanced funds may become inflexible and a burden to effectively manage.


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