DIY Balanced Funds for Investing

in Index Fund, Mutual Funds

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 very high risk and very 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, lets 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 pretty 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.

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:

Balanced in What Way?

Balanced Doesn’t Have to Mean Expensive

  • 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 really 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 and see if you can mimic it using simple Index Funds. Yes this might take you about an hour or two, but then you have about the same mutual fund, but with Index Fund (or ETF) Management Fees.

Let’s Have Fun!

Want to really 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 really want to pay a 2.55% fee (every year) ?

{ 8 comments }

  • My Own Advisor April 17, 2014, 7:59 PM

    Let’s see, I have cash, TD, RY, BNS, SU, BMO…oh, I don’t have the Japan TOPIX Index Future.

    Ah well – can’t win ’em all!?

    Hard to believe a product for 2.55% fee (every year) can actually exist.

    Mark

    Reply
    • bigcajunman April 17, 2014, 8:33 PM

      I thought Japan TOPIX was a Formula One team?!? Ah well…

      Reply
  • Colin April 17, 2014, 4:02 PM

    I made the “Let’s recreate with index funds” request of my advisor. He said absolutely, but I now need to charge you a 1.5% assests under management fee of 1.5%. He is now my former advisor.

    Reply
    • bigcajunman April 17, 2014, 4:10 PM

      Nice… at least it’s easy to see the tiger’s stripes.

      Reply
  • Bernie April 17, 2014, 11:51 AM

    If you don’t want DYI a very decent low cost mutual fund that has outperformed since inception is Mawer Balanced fund. It’s a globally balanced fund with a MER of 0.96%. The fund has averaged 8.5% total returns since startup in early 1988.

    Reply
    • bigcajunman April 17, 2014, 12:18 PM

      I shall investigate, thanks for the “tip” 🙂

      Reply
  • Robb Engen April 17, 2014, 9:17 AM

    I like the simple model portfolio that Dan put together using e-Series funds. It’s easy to set-up and maintain using just four funds (Canadian, U.S., International, and Cdn Bonds). No commissions to buy, and the MER is just 0.42%.

    http://www.theglobeandmail.com/report-on-business/video/video-carrick-talks-money-the-im-ready-to-start-investing-portfolio/article16067975/

    Reply
    • bigcajunman April 17, 2014, 9:30 AM

      Precisely, most couch potato set ups are “Balanced”, someone might make a few quid offering different balances in Index Fund/ETF portfolios, but why are folks paying 2.56% Fund Fees?!?!?

      Happy Easter Robb!

      Reply

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