There remains two important points that I want to make regarding funds that provide a balanced allocation to equities and bonds.
The first is that many mutual funds still charge too high a fee, and that the positive returns we have seen from these vehicles to date, due to some pretty unique circumstances, has for many smoothed over the issue of high fees in low growth/low yield environments and high fees per se, irrespective. There are a number of recent arguments in the media that appear to suggest it is not returns relative to the benchmark that matter, but positive returns irrespective of relative magnitude. This is lazy!
Following on from the previous post which discussed the unique characteristics of the last 20 years and the impact of this on the returns from balanced investment vehicles, we can now look into the return dynamics more closely and in particular the outsize bond return boost post 2007.
There is a skewed reality where “all is going to be OK”, because we can rely on the past to save us!
I keep on seeing comments in the media and from consumer focussed financial periodicals to the effect that investors who buy and hold balanced portfolios will always come through and eventually returns will beat previous highs, and investors should not worry. This is both overly simplistic and worrying!