Investors are overdoing it with balanced funds

Stop two-timing your balanced fund.

Chosen wisely, balanced funds are convenient blends of stocks and bonds can be your entire portfolio. If this convenience allows you to commit to a regular investing plan over the long term, then balanced funds can be a big win.

The problem with balanced funds is that both individual investors and advisers often can’t stop at one. A reader recently e-mailed to say he held Mawer Balanced and Steadyhand Founders, both of them strong low-fee choices. The question: Could I suggest any other similar funds?

One that jumps to mind is Beutel Goodman Balanced, but never mind that. An investor who owns Mawer Balanced and Steadyhand Founders doesn’t need another balanced fund. In fact, either one of these funds on its own would be a dandy portfolio, case closed.

Mawer Balanced (full disclosure: I own some) has about one-third of its assets in bonds and most of the rest spread out in Canadian, U.S. and international stocks. Steadyhand Founders is a little more conservative – 47 per cent bonds and cash and 53 per cent stocks from Canada and the rest of the world. Returns for the pair reflect their differing asset mixes. The Steadyhand fund averaged 6.7 per cent annually for the five years to April 30, the Mawer fund 9.9 per cent. Over the previous 12 months, returns for both are right in the same zone – 3.1 per cent and 3.4 per cent, respectively.

The risk when you mix multiple balanced funds is that you lose track of how your portfolio is built. What’s your exposure to bonds and stocks if you own a bunch of balanced funds? Are you really going to do a weighted aggregate breakdown of all your funds to find out? What about exposure to individual regions, sectors and stocks? One balanced fund is pure simplicity in terms of showing you what you own. Multiple balanced funds are a puzzle you have to put together yourself.

If you like the convenience of a balanced fund, find one with low fees, long-term consistency of returns and approach and an asset mix that corresponds to your needs. Commit to it and forget about the others. It’s like a marriage.