What Are Balanced Funds?

The all-in-one investment solution.

For many Canadian investors, the idea of building a portfolio from scratch - picking individual stocks, bonds, and other securities - can feel overwhelming. This is where balanced funds come in.

Balanced funds are one of the most popular and practical investment solutions available, offering a simplified, all-in-one approach to diversification. At SG Wealth, we often use balanced funds as a core holding for clients who value simplicity and stability. Let us explore what they are and why they might be a great fit for you.

What Is a Balanced Fund?

A balanced fund is a type of mutual fund that invests in a mix of both equity (stocks) and fixed-income (bonds) securities. The goal is to provide a "balance" of both growth and income, while also managing risk. Instead of you having to buy a separate stock fund and a separate bond fund, a balanced fund does the work for you, combining both into a single, professionally managed portfolio.

The Classic Split

The traditional balanced fund follows a 60/40 asset mix: 60% in equities (stocks), which is the engine for long-term growth, and 40% in fixed income (bonds), which acts as a stabilizer, providing a cushion during stock market downturns and generating a steady stream of income.

While 60/40 is the classic model, balanced funds come in a variety of asset mixes to suit different risk profiles. A conservative balanced fund might hold 40% stocks and 60% bonds, while a growth balanced fund might hold 80% stocks and 20% bonds.

The Key Benefits of Balanced Funds

Built-in Diversification

With a single investment, you get exposure to a wide range of stocks and bonds across different asset classes, industries, and geographic regions.

Automatic Rebalancing

The portfolio manager maintains the fund's target asset mix, enforcing a disciplined buy-low, sell-high strategy without any effort on your part.

Simplicity

The ultimate one-ticket solution, perfect for investors who want a simple, low-maintenance way to invest, especially within registered accounts like RRSPs and TFSAs.

Volatility Buffer

The bond portion provides a buffer during periods of stock market volatility, as high-quality bonds often hold their value or rise when stocks decline.

Who Are Balanced Funds For?

Balanced funds are an excellent choice for new investors, as they provide a perfect starting point with instant diversification and professional management. They are also ideal for hands-off investors who have a busy life and do not have the time or desire to manage their own portfolio.

Retirees often favour them for the blend of income from bonds and growth from stocks. They are also well-suited for anyone who wants to simplify their financial life and consolidate their holdings into a single, easy-to-understand investment.

The SG Wealth Perspective

While balanced funds are a fantastic tool, they are not a one-size-fits-all solution. The right asset mix for you depends on your specific financial goals, your time horizon, and your personal comfort with risk. As part of our investment solutions process, we conduct a thorough risk tolerance assessment to determine the optimal blend of stocks and bonds for your portfolio.

Understanding the fees associated with your funds is also an important part of choosing the right balanced fund for your needs.