There is no denying the important role that balanced mutual funds play in one’s investment career. Whether you are a hands-on investor or someone who would prefer to have no involvement whatsoever when it comes to investment management, the right balanced mutual funds can easily find a home in your portfolio. In fact, many investors will hold funds that are managed by their favorite fund manager, and what better place to test a fund manager’s true skill than in a balanced fund.

What better place to test a fund manager’s true skill than in a balanced fund.

As discussed at length elsewhere on this site, the idea of balanced funds is to achieve above-average returns (as measured by some standard, either an index, a combination of indices, or some other standard like LIBOR-plus x%) either through tactical asset allocation or strategic asset allocation strategies. In a tactical asset allocation fund, the fund manager will shift between income assets and equity assets depending on how the manager “sees” the markets heading. In a strategic asset allocation fund, the fund manager ensures that the assets of the fund remain within their prescribed limits (e.g. 25% income class, 75% equity class) and will make adjustments once the assets deviate from this strategy.

Okay, with that out of the way, let’s take a closer look at the importance of balanced mutual funds in everyone’s portfolio, but especially for the hands-off investors.

For the investor who has properly positioned his or her portfolio the way he or she wants it and actually maintains some form of involvement in the investment account, holding a top-performing or top-ranked mutual fund can provide a great deal of insight into the investor’s own abilities. If the investor is astute enough, he or she will find a balanced fund that closely reflects his or her own portfolio or, better yet, his or her target time date. For example, if you know your investments are for retirement and that you are going to retire in the year, say, 2030, then finding a Target-dated balanced mutual fund that mirrors your risk tolerance and investment objective can be quite easy to do. Holding such a fund and comparing your existing portfolio’s performance against the performance of the mutual fund can be humbling and educational. In instances where performance returns vary greatly, you can see exactly where you fell short.

For the hands-off investor, the balanced mutual fund offers a great opportunity to take advantage of the best skills and asset management that money can buy. Best part is that you do not have to pay, directly, for this elevated level of expertise and skill… well, you sort of pay, but it is proportionate to the amount of money you invest. So, if you invest $10,000 and it grows to $20,000, you give up as much as 2.0% (or marginally higher, but you get the idea) annually. That means you will have to give up $400 for that year. The more you portfolio grows, the more you pay.

But let’s take a closer look at this. Let’s say you decide to invest in one of Franklin Templeton’s Target dated portfolios, we’ll go with Target A for fun. In this case, you would pay roughly $100 in fees (which comes out of your asset value, not out of your pocket) and in return you would have a Franklin Templeton VP with more than 20 years of experience at the company (3 years with this particular fund) managing your money. Imagine that. Better yet, consider that this particular fund has extremely low risk given the returns it proves you annually…

Now consider this, especially if you are a hands-off investor:

If someone told you that you could have the VP of one of the largest fund companies in the world managing your money before you read this, what would you have done? Laughed? Thought that person was nuts?

Now you know. The VP of Franklin Templeton will not only manage your money, no matter how much (or little) you have to invest, but he will only charge you 0.5% (or up to 2% elsewhere). And if the VP of Franklin Templeton can’t get it right when it comes to balanced mutual funds (or any other funds for that matter) what does that tell you?

Think about that…

And please share this article with your friends

One Response to “Balanced Mutual Funds Are a Must For Hands-Off Investors”