Seeking to Achieve a More Favorable Balance?

December 2018

  • Stephen M. Goddard
    Stephen M. Goddard, CFA
    Lead Portfolio Manager
  • Gary B. Cloud
    Gary B. Cloud, CFA
    Portfolio Manager

For decades, investors have relied on traditional balanced funds to gain portfolio diversification and minimize volatility. With a classic 60% allocation to equities and a 40% allocation to fixed income, balanced funds have historically provided long-term oriented investors with impressive relative capital appreciation, but with lower volatility as compared to an all-equity portfolio.For investors seeking the benefits of a professionally managed blend of stocks and bonds, consider the following two advantages:

1. Fewer Sharp Declines

Over the long-term, a hypothetical balanced portfolio comprised of 60% in the S&P 500 Index and 40% in the Bloomberg Barclays Capital Intermediate U.S. Government/Credit Index protected capital better than an all-equity portfolio. Over the course of four decades (1978-2018), the S&P 500 Index experienced a loss of between 10% - 20% once and a loss of more than 20% twice. The balanced portfolio experienced zero losses of between 10% and 20% over the period, and a loss of over 20% just once, in 2008, when it posted a loss of 22%.

2. More Favorable Risk/Return Relationship

As might be expected, the S&P 500 Index has provided more return than the Bloomberg Barclays Capital Intermediate U.S. Government/Credit Index over time. However, the additional return is accompanied by more risk. During the 1978-2018 time frame, the S&P 500 Index returned 11.39% with a risk factor of 15.20%, as measured by standard deviation, whereas the Bloomberg Barclays Capital Intermediate U.S. Government/Credit Index returned 6.84% with a standard deviation of only 4.16%. A hypothetical balanced 60/40 allocation enjoyed 86% of the return of an all-equity portfolio with 39% less risk during the same time frame.