There has never been a worse time to own balanced funds, and yet nothing is more popular in the mutual fund world right now.
Oh, those thickheaded investors? No way. Balanced funds make sense for nervous types, even if they too often demonstrate the fund industry at its most exploitative.
Here’s a new rule for the uncertainty of 2010: Sometimes, less than optimal investing solutions are better than letting your emotions guide you.
Has your gut been telling you to stay out of stocks and keep your money safe in high-interest accounts, money market funds and bond funds until conditions look more stable? If you listened, then you’ve missed a 50-per-cent gain in the stock market since it bottomed in March, 2009.
True, the markets have essentially gone nowhere since last winter and may have some room to fall. But if you’ve been out of the stock market for the past 18 months or so, you missed a rally that repaired a lot of the losses in the big market crash.
That wouldn’t have happened if you owned a balanced fund. Depending on the exact type, balanced funds may hold between 25 per cent and 70 per cent of their assets in bonds and the rest in stocks and cash. You are automatically investing in a diversified portfolio, in other words. You may not want to venture into the stock market by investing in an equity fund, exchange-traded fund or stocks, but balanced fund managers are doing just that with your money behind the scenes.
And what if the stock market falls? With their heavy bond holdings, balanced funds decline less than pure investments in stocks. That means nervous investors are more likely to stick with them over time and not sell prematurely.
