Eating a balanced diet is crucial to your body’s well-being. And choosing a balanced mix of investments is the key to your financial health, financial advisers say.

But there’s more than one way to achieve balance in investing, and the experts don’t always see eye-to-eye. While getting equal measures of safety, income and capital appreciation is usually the goal, the methods vary. You can choose balanced funds. Or you can buy a mix of equity and bond mutual funds. Or build your own balanced fund with carefully selected stocks and bonds.

“In terms of flexibility, it comes down to the client and how much money they have,” says Tom Zaks, an investment adviser at RBC Dominion Securities. Regardless of the method, your goal will be “trying to blend enough asset classes to get growth and stability.”

If you are just starting to save, balanced mutual funds offer an advantage because you can easily buy and add to your holdings in small amounts, without having to readjust the portfolio, he notes.

That’s because all-in-one balanced mutual funds hold a combination of equity and fixed-income securities, and buying more automatically distributes the new money across the asset classes. Balanced funds provide income and capital appreciation while steering away from too much risk.

The balance, which often hovers around 60-per-cent stocks, 40-per-cent bonds, can handle downturns in the stock market without wiping out your savings. However, balanced funds will offer less of a return if the stock market surges.

As your portfolio moves into five figures, Mr. Zaks recommends buying separate equity and fixed-income mutual funds to get exposure to such areas as international or domestic stocks, various investment styles such as growth or value, and different fund managers.

“It provides you with the ability to get a little bit more flexibility outside the balanced fund,” he says. “You’re not relying on that one manager who’s managing that balanced fund.”

For his own clients with portfolios of six figures or more, Mr. Zaks builds a balanced portfolio of stocks and bonds and charges management fees of 0.75 per cent to 1.5 per cent (which is low compared with the 2 per cent or more charged by many balanced mutual funds).

Mr. Zaks says one investment product to avoid is mutual funds bundled together in a single package that charges a premium above and beyond the costs associated with the individual mutual funds inside it.

Some fund companies, in response to investors’ distaste for this type of product, offer low-fee options designed to lure investors into letting one balanced fund do all the work for them, regardless of their net worth.

One example is Quotential,Ö a product series from Franklin Templeton Investments. With $6.8-billion under management in seven portfolios of mutual funds, Quotential has two balanced-fund options, says lead manager and chief investment officer Brent Smith. There are no management fees on the funds inside both the $3.5-billion Franklin Templeton Balanced Growth Portfolio, which has had a 10-per-cent annualized return in the past 3 years, and the $1.2-billion Franklin Templeton Balanced Income Portfolio, with 8.2 per cent. Each portfolio charges a management fee of about 2 per cent, he added.

“For the individual investor out there who’s saying, ‘Am I getting something that’s going to change with the times?’ the answer is, absolutely,” Mr. Smith says. “We rebalance the portfolios. If we think Canadian equities are overpriced, then we’ll reduce ..... and add those areas outside Canada.”

Balanced funds, Mr. Smith insists, aren’t just for less-savvy folks with modest amounts to invest. In fact, his own company pension money is entirely invested in the balanced-growth fund he oversees. He says it beats chasing down individual fund ratings or trying to gauge the end of a sector bubble.

A professional balanced-fund manager won’t make mistakes such as investing too heavily in technology or energy, Mr. Smith says. “The risk is so many investors chase the winners and avoid the ones who haven’t done as well.” Demand for balanced funds in Canada is strong. Of the $20.8-billion in mutual funds sold in 2006, three of the six top-selling categories as determined by the Canadian Investment Funds Standards Committee represented balanced funds, according to a report from Morningstar Canada. Canadian income balanced funds saw $6.4-billion in new sales, the second-highest category after bond funds. Canadian balanced funds came in fourth with $3.8-billion, and global balanced were sixth, with $2.8-billion.

The idea behind these popular funds is simple: some of their holdings go into safe and reliable fixed-income assets, and the rest go into stocks with growth potential. These funds will create a balance, either by buying individual stocks and bonds, or blending equity funds and fixed-income funds.

“The average investor out there is someone looking more for that pension style of management of 60-per-cent equities, 40-per-cent fixed income,” Mr. Smith says.

“They don’t want to take on a lot of risk; they’re happy getting maybe a 7.5 [per cent] annual return over time.” Investors who have a large sum of money and are getting into the markets for the first time should choose a balanced fund rather than a big play in the stock market, says Brendan Caldwell, president and chief executive officer of Caldwell Investment Management Ltd., a private wealth manager and mutual fund company with $50-million in its Caldwell Balanced Fund.

“When people finally get around to deciding to invest, it’s usually at the wrong time. It’s usually when they can’t stand how much money other people are making,” he says. “They jump in themselves, and it’s always the wrong time.” If your investment is a surrogate for a pension, then a balanced fund is probably the right choice, he says. “It’s for those who want to have growth, but not growth at any cost, or for people with large amounts of money to invest all at once, or for people who look at their money like it was their pension,” Mr. Caldwell says. “Most people don’t need the best, highest performing nuclear fund. They just need to know their money is being looked after sensibly, and that’s what a balanced fund does.”

Theresa Ebden is an associate producer for Report on Business Television.