DIY Balanced Funds for Investing

I always find it interesting that most of the times I have spoken to an “investment person” I have been told What you need is a Balanced Fund, which on face value is a good piece of advice. Rarely have I walked in and made the following statements:

• I love High Tech. What I want to do is buy a single stock that has high risk but high potential pay back.
• I feel comfortable investing in hedge funds, and want to explore that further
• Bangladesh and Russia look like interesting investment opportunities, let’s put all my money there.
• I don’t trust the stock market, so all I want are Canada Savings Bonds

Most of the questionnaires I have filled in would not show that, however, I do find it interesting that a lot of the wording in these questionnaires are very “Balanced Fund Sympathetic” (but most questionnaires tend to herd the subjects towards the middle of the pack).

While I realize everybody needs to earn a buck, the Balanced Fund gig pays well with the CIBC Balanced Funds having Fund Expenses of 2.55% , someone is living the high life on those fees. I do like the extra 0.10% in “Trading Expenses”, who gets that money? Oh their traders? Mostly I would guess.

Sample Balanced Fund

So, if you read the CIBC (or TD or whoever) Quarterly Portfolio Disclosure you can see that the top few investments in the fund are:

• Cash & Cash Equivalents 4.87
• Government of Canada, 1.50%, 2023/06/01 4.46
• Toronto-Dominion Bank (The) 2.83
• Royal Bank of Canada 2.71
• Government of Canada, 4.00%, 2041/06/01 2.05
• Bank of Nova Scotia 2.04
• Canada Housing Trust No. 1, 2.35%, 2018/12/15 1.97
• Canadian Imperial Bank of Commerce 1.78
• Korea KOSPI 200 Index Future, December 2013 1.77
• Suncor Energy Inc. 1.75
• Bank of Montreal 1.47
• Japan TOPIX Index Future, December 2013 1.36
• etc., etc.,

If you were a wild investor, you could simply mimic this list, but I suspect you’d end up paying a lot in trading fees. The other option is to group the list into simple index funds and see if you can mimic it using them. Yes, this might take you about an hour or two, but then you have about the same mutual fund with Index Fund (or ETF) Management Fees.

Let’s Have Fun!

Want to have fun? You know when I ask that, it’s going to be fun, but the next time your “Investment Person” proposes a similar Balanced Fund (my apologies to CIBC all the banks have expensive Balanced Mutual Funds, not just them) ask them if they could create an investment plan using Index Funds for a lower MER. Wonder what the response to that query might be?

Do you want to pay a 2.55% fee (every year)?

Let’s take the FUN for banks out of Mutual Funds.

Index Fund and ETF Articles

• What is Couch Potato investing? This one helps you set up a simple portfolio
• Couch Potato Model Portfolios for 2015 has 3 simple ones for you.
• Is My Two-ETF Portfolio Too Simple? Boomer & echo even have a 1 ETF portfolio, too simple?
• Too Conservative Portfolio? Really? Don’t think so, it has worked for me.
• RESPs and High Fee Mutual Funds is a specific example that I found with my kids’ RESPs. I have also used it with my son’s RDSP.