I have spoken with a few co-workers about how they are being told to buy when they drop by their bank to top up their RRSP’s for this year, and to no surprise every one was advised that what they should do is buy the Bank’s “Balanced” Mutual Fund just to be safe. One or two of them got told to buy a 5 year GIC as well, which also caused me to chuckle but let’s stay focused on the concept of a Balanced Mutual Fund.
Our friend Rob Carrick has already written about Lousy Balanced Funds and the Globe and Mail has also written about Seeking some Balance in Balanced Funds and you should read both of those articles if you are even thinking about buying a “Balanced” Mutual Fund or ETF.
Just a cursory investigation gives you the following 4 “Balanced Funds” that are available:
- CIBC Canadian Equity Balanced MER 2.3%
- BMO SelectClass® Balanced Portfolio (Series A) MER 2.48%
- ManuLife Canadian Balanced Fund MER 2.45%
- RBC Balanced Fund MER 2.36 %
And there are countless other “Balanced Funds” out there, which are balanced between many different axes (Equities, Bonds, GICs, etc.,). Note the MER’s on the funds I have found, pretty astronomical, aren’t they? But if it is a balanced fund it shouldn’t be going down or up a great deal, shouldn’t it? So you’ll get lower growth and a higher MER? This seems an odd pairing.
At my retirement seminar an actual Financial Planner dubbed the “Balanced” Mutual Fund as the worst choice mutual fund, which almost caused me to spit my coffee out (since he sells Mutual Funds). His points were quite valid:
- If you want a “Balanced” portfolio why don’t you just spread out the funds you are buying instead of trying to get it all in one fund?
- If it’s all in one fund, you can’t take your profits on the well performing part of the fund can you? You must sell the entire mutual fund unit (not just the part that went up 10% this year), which is a function of Mutual Funds in General, but if you had bought a group of Index Funds or ETFs, you’d have that option, wouldn’t you?
- Even he commented on the MER for most funds as well
The other funny comment he made was that the standard procedure is to have folks fill in a “Questionnaire” attempting to figure out what kind of investor they are, but it is interesting how many folks end up being pitched “Balanced” funds because of their questionnaire answers.
What Can You Do?
If you want a Balanced set of investments, figure out what “Balanced” means to you and talk to someone who knows ETF, Index Funds and other investment concepts, and create your own Balanced plan. The other interesting point is, no one ever asks for your RRSP planning if you have a pension or not (most folks don’t, but if you do have one, it really does change the equation drastically).
How many folks really even know what the “Balanced” means in their Mutual fund name? Have you filled in a Questionnaire and not been told you need a “Balanced” fund?