Dynamic Marketing Communiqué

Are balanced funds truly balanced? Know whether or not this investment vehicle is worth your money… [Wednesdays: The Independent Investor]

January 5, 2022

Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more. 

A Note from Miles Everson

I believe investing is an important financial activity that every human being must learn. 

Whether you’re a freelancer, business owner, marketer, communicator―whatever your profession is―knowing how to invest smartly and make your money work for you will help you generate great returns. 

In today’s article, I would like to focus on one investment vehicle:

Balanced Funds. 

Check out why this investment strategy poses a few risks and why, in my opinion, it’s better to use other investment strategies instead. 

Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute

The Independent Investor 

Wealth creation isn’t just about making money. It’s also about knowing how to invest so that your money works for you.

Don’t think about investing as something that’s only for those in the business and finance industry as well. 

Whatever your career is―manager, marketer, public speaker, copywriter, freelancer, etc.―you need to have basic knowledge about smart investing. 


Since freelancers don’t work for a primary employer, they don’t receive the same guidance on their investments as someone working for a big firm with a 401(k) plan. 

While some freelancers may view this as a downside, it’s not necessarily a bad thing. It means they don’t need to be “untaught” from bad advice.

Investment advice that corporate 401(k) plans provide to workers can be misleading. It almost always starts with the misguided question, 

“Are you a conservative or aggressive investor?”

Here’s the thing: Even if you aren’t a corporate employee and using a brokerage account from one of the many firms that offer brokerage services, you’ll likely face the same question.

For most people, the answer is somewhere in between conservative and aggressive. 

Few people think of themselves as overly aggressive or unreasonably conservative. This leads people to choose a balanced option that fits their investment personality.

That balanced option is a Balanced Fund. This type of fund is a mutual fund that contains a mix of stocks and bonds. Asset management firms market these products to investors who seek a mixture of safety with modest growth.

The thing is, with this approach, we get bad investing… and that’s a BIG problem.


First, you find yourself wondering what goes into these balanced funds. Is a 60/40 portfolio split between stocks and bonds truly balanced for a 25-year-old beginning his or her career, or is this investment strategy better suited for a 50-year-old nearing retirement? 

Both may consider themselves to be balanced investors.


Neither your personality nor your age should define your investing strategy. Any financial advisor worth his or her salt should ask you this question instead: 

“When will you spend your money?”

Money that has a spending horizon of over 10 years from now should be heavily weighted toward equities.

On the other hand, if you need to spend the money within the next year or two, it needs to stay in cash or money market funds.

Another reason why balanced funds pose a big problem is that these products are hard to benchmark accurately.

Think about this: Since a balanced fund is a mix of equities and bonds, it can’t be compared with an index like the S&P 500 Index to gauge performance.

This makes it difficult for retirement savers to determine how their money is doing.

Oftentimes, these funds also underperform the mix of benchmarks that they are designed to beat.

All of this doesn’t even cover how management fees on investment funds can slowly but surely eat away at returns long term. That’s also hard to see when it’s buried in some balanced level of performance.

So, in reality, those who haven’t been steered toward investing in a balanced fund are often much better off.

Below are a few more reasons why balanced funds are riskier than other investment strategies: 

  1. They have a high equity exposure. 

Balanced fund managers and investors who take higher risks with their debt investments are exposing themselves to more problems. 

Sure, the debt portion of a balanced fund reduces the equity market volatility risk a bit, but the risk is still high. According to Vidya Bala, Mutual Fund Research Head of FundsIndia, 

“Balanced funds don’t give high importance to their debt portion and they don’t manage duration actively. Interest rates are not expected to fall significantly from current levels, but they have been holding on to long-duration bonds.” 

  1. They are prone to market crashes. 

Warren Buffet, one of the greatest investors of all time, once said, 

“Only when the tide goes out, you discover who has been swimming naked.” 

What he meant by this was investors shouldn’t judge fund managers based on their success in a bull market alone. The best fund managers are those who manage to stand firm even when the stock market is falling apart. 

For example: When the market is doing fine, some investors and fund managers, including balanced fund managers, take extra risks to boost returns. However, once the stock market crashes, you’ll see that these people have been swimming naked. 

This results in balanced fund investors and managers getting a rude shock as their schemes crashed far more! 

  1. They are actually not low-risk products as some fund managers say. 

Investors should not get into balanced funds for the short term or medium term (1 to 3 years). As Tanwir Alam, Founder and CEO of Fincart, said, 

“Investors opt for balanced funds because they don’t want high risk. But in the race to generate returns, unfortunately, some of them don’t remain balanced funds.” 

Compared to the previous years, these funds have increased their aggressiveness and even within equities, balanced funds have riskier mid-cap stocks. 

Knowing How to Pick the Right Fund 

If you’re planning to invest in the stock market, take note that you shouldn’t get into balanced funds for dividends. These funds are not meant for regular dividends and financial advisors who promote these as low-risk products are harming investors’ interests. 

So, in picking the right investment strategy, go with less risky funds. In Alam’s words, 

“Stick with funds where the equity exposure is kept close to 65% and avoid schemes with excessive exposure to mid-caps.” 

Additionally, you must look on the debt side and make sure fund managers are not taking aggressive bets. This is because funds taking high risks on both equity and debt will be bad for investors… and it would be better to simply avoid such funds. 


Balanced funds are high-risk products. As an investor, you shouldn’t treat them as safe options to generate great returns in your portfolio. 

If you’re interested in these funds, do proper research before investing in them. 

… and if ever you’ve decided to push through with this strategy, keep in mind to invest slowly―either through a systematic investment plan (SIP) or a systematic transfer plan (STP). 

Remember: In investing, choose and manage funds that are not only great for the investment management industry, but also great for your personal investing strategy. 

We hope you find this information useful! 

(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.) 

About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”

To best understand a firm, it makes sense to know its underlying earning power. 

In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times. 


Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept. 

Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors. 

We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run. 

Our goal? 

To help you get on that path towards the greatest value creation in investing. 

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s “The Independent Investor!”


Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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