Balanced Portfolio

Balanced Portfolio: Meaning, How to Create, ETFs & Examples

Over the past 25 years, I’ve been trying to figure out the best way to maximize returns while minimizing risks. AHistorically, one of the best strategies has been to use a “balanced portfolio.”

Capital preservation has been the main reason for a balanced portfolio’s success in the past. The stock market had times when it went down or even worse, went sideways.

You can’t predict when to sell your assets and generate income. Many people will only have 15-20 years of exposure to the market before retiring.

As a financial adviser and planner, I used to use different software in order to determine the best asset allocation for each investor based on his or her risk tolerance and investment goals. It may or not be the best asset allocation model for your situation to use a balanced investment portfolio. I would strongly recommend having a qualified financial advisor review your objectives and goals before making any allocation.

What is a Balanced Portfolio Allocation?

u003cstrongu003eThe answer is that a balanced portfolio in the strictest form is a mix of 50% stocks and 50% bonds with the objective to balance capital preservation and growth.u003c/strongu003e However, most portfolios utilize a blend of 60% stocks and 40% stocks to get a slightly higher return. It is used by investors that have moderate risk tolerance but also want some growth

What is an example of a balanced portfolio?

Joe and Sally Smith have reached their 40s, and they plan to retire in the next 25 years. They have some experience in the stock market but are not big risk takers. Luckily, they were able to put away $100,000 in an IRA. Both have 401ks from their jobs.

Vanguard Total World S&P ETFVT60
Vanguard Total Bond Market ETFBND40
Sample of Balanced Portfolio

Here is an example of a portfolio that I would consider balanced, but does not use bonds.

TickerThe CompanyAllocation
APDAir Products & Chemicals1.10%
ARIApollo Commercial Real0.10%
ATOAtmos Energy3.70%
AVBAvalonBay Communities2.60%
BHKBlackrock Core Bond Trust1.20%
BKTBlackrock Income Trust0.20%
BMYBristol-Myers Squibb3.70%
BTZBlackRock Credit Allocation Income Trust0.30%
CAGConagra Brands1.10%
CHKChesapeake Energy0.00%
EMNEastman Chemical3.70%
EMREmerson Electric4.00%
EOIEaton Vance Enhanced Equity Income Fund0.40%
It is a good idea to use the following acronym:Energy Transfer0.20%
ITWIllinois Tool Works3.80%
JNJJohnson & Johnson3.10%
JPMJPMorgan Chase9.30%
KIMKimco Realty0.20%
LLYEli Lilly9.90%
MRKMerck & Co2.80%
NMNavios Maritime Holdings0.00%
You can also find out more about the ORent Income0.50%
PEEKHealthpeak Properties1.30%
RTXRaytheon Technologies1.20%
UEUrban Edge Props0.10%
VNOVornado Realty0.40%
VZVerizon Communications0.60%
WRIWeingarten Realty1.10%
XOMExxon Mobil3.40%

How to Create a Balanced Portfolio

To create a balanced portfolio, the easiest thing to do is to invest 60% in stocks and only 40% in bonds. Stocks and ETFs can be used to achieve this. Bonds or mutual funds. Investors can build a portfolio that is balanced in two ways.

Investors can buy a balanced portfolio ETF, mutual fund or both that is professionally managed. Over 1,000 ETFs and Mutual Funds offer some form of a portfolio that is balanced. It is the fastest and easiest way to get a balanced investment portfolio. The fees can be a drag on overall portfolio performance.

Second, investors can choose stocks, bonds, or ETFs individually and create their allocations themselves. Thanks to fractional trade, investors do not need to invest hundreds of thousands of dollar and can start with little money. This is a more complex process that requires time and patience. There could be a higher return because there are less fees, but also more risk.

Personal, I’m less inclined to invest in bonds because of the inflation risk. Instead, I have invested in high-quality dividend stock to preserve capital. I do this because bonds may lose value as rates rise. That is why they are a part of a balanced investment portfolio. Here are the basics:

Step 1: Define Your Allocation Percentage & Strategy: You will need to determine your basic allocation of bonds and stocks. Also, you will need to decide your growth weight versus value.

Step 2: Determine Your allocation on stock sectors: You can put up to 8% of your portfolio in each sector. If you’re looking to grow, then you should focus more on the tech sector. Consumer staples is a good choice if preservation is more important.

Step 3: Find stocks/ETFs that are in these sectors, and buy them according to your allocation.

Balanced Portfolio By Age

You can start an age-based portfolio by subtracting 100 from the age of the investor. A 40-year-old investor is a good example. The portfolio would consist of 60% stocks and 40 % bonds. This is a standard way to define a portfolio that is balanced.

Benefits of a well-balanced portfolio

It is important to have a budget that is balanced because it will provide a cushion for the market if it drops, and allow the investor to profit from the growth in the stock market. Capital preservation is more important as you get closer to retirement, because there will be less money.

Negatives to a balanced portfolio

If rising interest rates and inflation drive bond values lower, then a balanced portfolio could be detrimental to the investor.

Inflation risk of a well-balanced portfolio

If the investor holds a lot of bonds, inflation risk is high. The value of bonds will decline as interest rates increase. This could lead to the erosion of the bond’s principal, which would be the opposite of what bonds are intended for.

Balanced Funds

There are many ETFs that have a balanced portfolio. When building a balanced portfolio, here are some ETFs you should consider.

TickerThe Company
ARKKARK Innovation ETF
BONDPIMCO Active Bond Exchange Traded Fund
DBCInvesco DB Commodity Index Tracking Fund
ITOTiShares Core S&P Total U.S. Stock Market ETF
MDIVFirst Trust Multi Asset Diversified Income Fund
SMDVProShares Dividend Growth ETF
SPEMSPDR Portfolio Emerging Markets Fund
VBAL.TOVanguard Balanced Fund Portfolio
VEAVanguard FTSE Developed Countries Index Fund ETF Shares
VTIVanguard Total Stock Market Index Fund ETF shares
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