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having a balanced investment portfolio

Why Having A Balanced Investment Portfolio Is So Important

by Martha Simmonds

There isn’t a single investment style that can do everything you desire. Providing growth, producing income, protecting from potential risks, and much more are the reasons why the majority of investors own a variety of investments. Using your OANDA login, you can find more on what investments are available to you, including the use of balanced portfolios.

Balanced portfolios come in all shapes and sizes, and selecting the right one for your personal needs can be a difficult choice. Here is a little more on why a balanced investment portfolio is so important.

Types Of Balanced Portfolios

When it comes to balanced portfolios, the term doesn’t always surround a 50/50 mix of bonds and stocks. Many portfolios are available with mixed classes of assets representing everything from aggressive to conservative asset mixes. Further to this are varying risk levels which all require a different approach to asset management. Here is a selection of the different types of balanced portfolios:

Separate Balanced Accounts

Separate balanced accounts are the ownership of single, individualized accounts that feature securities monitored and chosen by a professional investment manager. While this strategy is often more expensive than other viable options, one of the great advantages is how you can customize the guidelines of your investment to engage in tactics such as tax-loss selling tailored to your personal needs.

Balanced Funds

As well as costing more, separate balanced accounts tend to have a required larger size in order to be managed efficiently. To gain a broadly diversified and professionally managed investment at a much lower cost, mutual funds are a great option. Mutual funds use particular guidelines. This means that if you desire a balanced fund, it is imperative to select one that has been designed to incorporate the varying asset classes. You can then coordinate the mix of these assets over a certain amount of time.

Robo-Advisor Programs

Robo-Advisor programs usually contain automated formulas that have collected a selection of investments that match the certain criteria you have set. With many investors having goals in their journey, the Robo-Advisor program tends to involve a mix of preservation and growth to the capital. Robo-Advisors will often create a balanced portfolio consisting of other investments representing varying asset classes.

Fixed-Allocation Portfolios

A great strategy for creating a balanced portfolio is by building around specific allocated targets that have been chosen based on a particular risk profile. The chosen target allocation will then be meticulously maintained. Keeping your asset allocation constant does not mean that your capital is standing still. You need to rebalance your mix of asset classes regularly to maintain this target balance. Another term for maintaining a fixed allocation is the passive asset allocation approach.

Opportunistic Portfolios

As you may notice by the name of the approach, opportunistic portfolios are those that take advantage of the market when certain opportunities show themselves. Surrounding a balanced portfolio, you would adjust your allocation depending on which classes the manager deems to be more desirable.

Target Date Funds

Target funds are a hybrid between passive and active allocation approaches. Target date funds use the assumption of the investor having a stated date when they want out. Target date funds are based around different dates meaning that investors can select one that matches their personal retirement plan.

The asset mix will be set in conjunction with the long-term risk and reward goals connected with the target date of the fund. The allocation will gradually adjust over time. This change is not a reflection of the market conditions but rather the risk and reward characteristic changes closer to the target date.

These differing approaches are specially designed to cater to the different preferences and needs of each investor, giving varying options for finding the perfect fit for your personal situation.

Benefits Of A Balanced Portfolio

So why is it beneficial to opt for a balanced portfolio when you can purchase different types of investments separately?

You should see your investments as a team. Not only should you purchase in varying styles of investments, but you should also choose investments that work well together. To many traders, having the right asset allocation is often thought of as being the most important decision in investing. Having a professionally coordinated portfolio compared to a randomly occurring one makes a lot more sense.

A good exercise is to think of a balanced portfolio as a style of one-stop shopping. Rather than having separate accounts that handle your stocks, cash reserves, and bonds, keeping everything together in the same pot makes management much easier. Overall this helps you monitor your investment program in a much more straightforward way.

Once you have obtained a mix of varying investments, this mix needs to be kept in proportion. Different assets will usually react in different ways within the market, meaning they will go up and down at different moments. Rather than having the proportions of your investments randomly change, it is advisable to periodically adjust them as a coordinated strategy to a balanced portfolio.

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