When is balanced, really balanced?

Have you ever wondered what the term balanced investment means?

Now before I begin, in the interest of transparency, as a self-licensed Certified Financial Planner, I have the ability to advise on any investment product or super fund that I deem suitable to meet your objectives. Why I am saying this from the outset? My intention with this blog is to simply present you the facts so that you can form your own conclusion.

So where do we begin? Let’s simply focus on one investment type, a balanced fund (be that investment or superannuation) because this is arguably the most common form of investment or at the very least the default option for the majority of superannuation funds.

First let’s ascertain what the term “balanced” means. Rather than me sharing my opinion, I thought I would take a leaf out of the Queens English and reference the Oxford Dictionary, noting:

“Balanced – keeping or showing a balance so that different things or different parts of something exist in equal or correct amounts”

I find this definition very interesting, as I do subscribe to the theory that something that is balanced, is well, balanced! Let’s pull this apart a little further… In the world of financial jargon, the reference we are making is the mix of investments that are considered to be risky (growth) and those that are considered to be defensive (conservative). Therefore, a balanced fund (by definition) would consist of equal amounts of risky and defensive investments.

To add further confusion into the mix, we also have other variations of the name balanced, such as, balanced growth, conservatively balanced, diversified balanced, blah blah blah, because of course, life would be way too boring if we made it simple!

So, when is a balanced fund actually balanced?

Let’s check out the data and you can make the decision for yourself. I have compared the following five leading balanced funds in Australia:

• Russell Balanced Fund
• Vanguard Balanced Fund
• MLC Balanced Fund (Horizon 4)
• Australian Super Balanced Fund
• Host Plus Balanced Fund

Now for the results, drum roll please:

Interesting outcome! Of the five funds researched, only one, represents what would be considered to reflect the mix of assets, as defined by our good friend, the Oxford Dictionary. Furthermore, Vanguard are what we would call a passive investment as compared to the other funds which are active in nature; a topic for another day perhaps?!?

So, why I am pointing these stats out to you?

Not only is there a vast difference between balanced funds, interpreting the information is also not so easy. For instance, only Host Plus, presented their information in a manner in a simple table like you see above, whilst the other funds listed the types of assets within the portfolio which required me to group them into risky and defensive categories.

Would it be too much to ask that we have a uniform approach to naming conventions? Again, excuse me for being a little cynical but that would make things a little too straight forward.

So, how do you really know when a balanced fund is balanced?

Start by asking questions and demanding information about your investment/s so that you are equipped with all the details to make an informed decision, knowledge is power! After all, this is your money and making the right choice takes you one step closer to living the life you want……