For the last 25 years, I have been watching the markets and trying to find the best way to outperform while keeping down risks. One of the historical strategies that have done well has been a “balanced portfolio.”
The reason why a balanced portfolio has performed so well in the past is because of capital preservation. The stock market has had periods when it has gone down or even more went sideways.
As an investor, you can’t always time when you need to liquidate your assets for income. In addition, many people may only be exposed for 15-20 years before they retire.
When I worked as a financial advisor and planner, I had different software to help find the proper allocation for investors based on their risk and investment objectives. A balanced portfolio may or may not be a suitable asset allocation model for you. I strongly suggest having a competent financial advisor review your investment goals and objects before making any allocation.
What is a Balanced Portfolio Allocation?
The 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. 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 a Balanced Portfolio Example?
Joe and Sally Smith are in their 40s and looking to retire in 25 years. They have some stock market experience but don’t have a massive appetite for risk. Luckily they have been able to save $100,000 and rolled it into an IRA. In addition, they both have 401ks at their jobs.
| Name | Ticker | Percent |
| Vanguard Total World Stock ETF | VT | 60 |
| Vanguard Total Bond Market ETF | BND | 40 |
Below is is another example of what I would consider a balanced portfolio, but doesn’t use bonds.
| Ticker | Company | Allocation |
| APD | Air Products & Chemicals | 1.10% |
| AB | AllianceBernstein | 5.00% |
| ARI | Apollo Commercial Real | 0.10% |
| ATO | Atmos Energy | 3.70% |
| AVB | AvalonBay Communities | 2.60% |
| BA | Boeing | 1.80% |
| BHK | Blackrock Core Bond Trust | 1.20% |
| BKT | Blackrock Income Trust | 0.20% |
| BMY | Bristol-Myers Squibb | 3.70% |
| BTZ | BlackRock Credit Allocation Income Trust | 0.30% |
| CAG | Conagra Brands | 1.10% |
| CHK | Chesapeake Energy | 0.00% |
| CSX | CSX | 2.50% |
| DE | Deere | 6.90% |
| DOW | Dow | 3.90% |
| EMN | Eastman Chemical | 3.70% |
| EMR | Emerson Electric | 4.00% |
| EOI | Eaton Vance Enhanced Equity Income Fund | 0.40% |
| ET | Energy Transfer | 0.20% |
| FLR | Fluor | 0.20% |
| HUN | Huntsman | 0.80% |
| INTC | Intel | 0.20% |
| ITW | Illinois Tool Works | 3.80% |
| JNJ | Johnson & Johnson | 3.10% |
| JPM | JPMorgan Chase | 9.30% |
| KIM | Kimco Realty | 0.20% |
| KMT | Kennametal | 0.60% |
| LLY | Eli Lilly | 9.90% |
| MMM | 3M | 2.90% |
| MPLX | MPLX | 0.80% |
| MRK | Merck & Co | 2.80% |
| NM | Navios Maritime Holdings | 0.00% |
| O | Realty Income | 0.50% |
| PEAK | Healthpeak Properties | 1.30% |
| PLD | Prologis | 5.50% |
| RTX | Raytheon Technologies | 1.20% |
| UE | Urban Edge Props | 0.10% |
| VNO | Vornado Realty | 0.40% |
| VZ | Verizon Communications | 0.60% |
| WRI | Weingarten Realty | 1.10% |
| WY | Weyerhaeuser | 3.00% |
| XOM | Exxon Mobil | 3.40% |
| Cash | Cash | 5.90% |
| Total | 100.00% |
How do You Create a Well Balanced Portfolio?
The easiest way to create a well-balanced portfolio is to put 60% in stocks and 40% in bonds. This can be done by using ETFs, stock. Bonds and or mutual funds. Investors can create a balanced portfolio in two different ways.
The first one is when investors buy balanced portfolio ETF or mutual fund that are professionally managed and/or allocated. There are over a thousand ETFs and mutual funds that offer some form a balanced portfolio. This is the most easy and fast way to getting a balanced portfolio. The downside to this is the fees that paid which can eat way at the overall performance of the portfolio.
The second way is that investors can individually pick out stocks and bonds and or ETFs and build the allocation themselves. Due to fractional trading, investors no longer need to have hundreds of thousands of dollars to invest and could start out with little money. This is more challenging and does require patience to time to properly research. Returns could be higher because there are fewer fees, but there could also be more risk.
Personally, I am less inclined to be exposed to bonds due to inflation risk and have substituted high-quality dividend stocks for capital preservation. I am doing this because bonds are likely to lose value as interest rates rise, which is the primary reason for bonds in a balanced portfolio. Here are the basic steps:
Step 1: Define Your Allocation Percentage & Strategy: Determine what your basic allocation is between bonds and stocks. You will also need to determine your growth verus value weight.
Step 2: Define Your Allocation On Stock Sectors: Generally you want to put 8% in each sector, but you may want to weight more into one such as tech if you are growth focused or consumer staples if you are more preservation focused.
Step 3: Search For Stocks/ETFs in those sectors and then buy them based on your allocation.
Balanced Portfolio By Age
To start a balanced portfolio by age, you take the number 100 and subtract the investor’s age. An example would be an investor that is 40 years old. The mix would be 60% stocks and 40% bonds. This would provide a standard definition of a balanced portfolio.
Pros of a Balanced Portfolio
The pros of a balanced budget are that it provides a cushion if the market goes down and allows the investor to take advantage of the upside growth of the stock market. However, capital preservation becomes more critical the closer someone is to retirement because soon they will not be making more money.
Negatives of a Balanced Portfolio
The negative of a balanced portfolio is that it may not take advantage of the entire growth of the stock market as a whole which would cause the investor to fall short of their investment goals it could also go he could also lose money, yes inflation were to drive the bond values to go down due to Rising interest rates
Inflation Risks of a Balanced Portfolio
Inflation risk to a balanced portfolio is severe if the investor has a large number of bonds. This is because the value of the bonds will decrease as interest rates rise. They could erode the principal which is the opposite of the purpose of bonds in this case.
Balanced Funds
There are a lot of balanced ETFs and mutual funds. Here are a ETFs to look at when building your balanced portfolio.
| Ticker | Company |
| ARKK | ARK Innovation ETF |
| BOND | PIMCO Active Bond Exchange-Traded Fund |
| DBC | Invesco DB Commodity Index Tracking Fund |
| ITOT | iShares Core S&P Total U.S. Stock Market ETF |
| MDIV | First Trust Multi-Asset Diversified Income Index Fund |
| SMDV | ProShares Russell 2000 Dividend Growers ETF |
| SPEM | SPDR Portfolio Emerging Markets ETF |
| VBAL.TO | Vanguard Balanced ETF Portfolio |
| VEA | Vanguard FTSE Developed Markets Index Fund ETF Shares |
| VTI | Vanguard Total Stock Market Index Fund ETF Shares |
