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Investing the balanced and steady way

Mr Lim Shyong Piau is the chief marketing officer at Lion Global Investors.
Mr Lim Shyong Piau is the chief marketing officer at Lion Global Investors. PHOTO: LION GLOBAL INVESTORS

A balanced fund helps investors avoid sitting at the extreme ends of the risk spectrum, while enjoying modest capital appreciation

For many individuals, investing can be confusing and overwhelming, with the wide range of choices and financial jargon. For some, the fear of losing their hard-earned savings — especially if the investment is high-risk with potentially high return — is so great that they would rather park them in a bank deposit. This is despite the low interest rates and the risk of inflation eroding the value of money.

Actually, there is a simple solution to avoid sitting at the extreme ends of the risk spectrum when investing, while enjoying modest capital appreciation. Investors could consider a balanced fund.

Weeds out Fear or Greed

A balanced fund owns both stocks and bonds and typically allocates 60 per cent of its portfolio in stocks and 40 per cent in bonds. Such a fund offers asset allocation benefits in a single structure, removing the anxiety that some investors face when deciding how much to invest or allocate to an asset class and when to do it.

The equity component (stocks) aims to deliver long-term returns while the debt component (bonds) provides stability to the portfolio by limiting the downside risks if either equity or debt enters a bearish phase.

A major advantage of this type of funds is the diversification benefits. It is also more convenient than if an investor were to invest in individual stocks or bonds on their own. Furthermore, they generally allow investors to invest with a low minimum investment amount ranging from $100 to $1,000.

In general, investors of balanced funds are typically less guided by fear or greed when investing. As Mr Russel J Kinnel, director of manager research at Morningstar, reportedly said: “People do pretty well in balanced funds because balanced funds tend not to inspire fear or greed.”1

Investors who invest in balanced funds tend to see smoother performance on these funds, making them more patient than other investors, not buying high and selling low. Consequently, their actual returns are more likely to match those of their funds.

According to Morningstar¹, in the 10 years through March 2018, investors in balanced funds, on average, had an actual asset-weighted 5.93 per cent annualised return. That was better than the 5.63 per cent annualised total return of those same funds. This indicates that balanced fund investors typically avoided bad market timing.

For mutual funds overall, the reverse was true. Actual investor returns were 5.53 per cent annualised, compared with a 5.79 per cent total return for the funds. That shows that, in most other funds, investors had smaller returns because they bought high and sold low.

It Matters to Invest in a Low-Cost Balanced Fund

In the current market environment where expectations of fund returns are muted, there is a hunt among investors for low cost investments. After all, cost is kryptonite for investment returns, as it eats into returns over time.

Research2 has shown that the expense ratio is the most proven predictor of future fund returns, and keeping the cost of investment low for investors would likely provide a higher net return for any given return.

Therefore, when investing, it is important to take note of a balanced fund’s total expense ratio (TER), which could range between 0.78 per cent and 4.3 per cent per annum (p.a.) for those sold in Singapore.

Lion Global Investors (LGI) recently launched the LionGlobal All Seasons Fund — a balanced fund of actively managed funds and exchange-traded funds (ETFs) that has a low TER capped at 0.5 per cent p.a., including a low annual management fee of only 0.25 per cent p.a.

Furthermore, the annual management fees of the underlying active funds in its investment portfolios are fully rebated. It also allows investors to start investing with just $100, through LGI’s online participating partners.

Investors who choose to invest in the fund consistently through a Regular Savings Plan can also take advantage of dollar-cost averaging (DCA) to ride out market volatility over the long-term. DCA avoids market timing by buying a fixed dollar amount of a particular investment regularly, regardless of a fund’s Net Asset Value. By doing so, more units of a fund are bought with that same fixed investment amount when prices are low and vice versa.

Investing in Balanced Funds Made Simple

The LionGlobal All Seasons Fund comes in two portfolio options — LionGlobal All Seasons Fund (Standard) and LionGlobal All Seasons Fund (Growth). These make it simple for investors to choose either option which they might deem more suitable for their respective risk profiles.

With a widely-diversified portfolio of funds and ETFs, comprising bond and equity funds, the fund is designed to better weather investment risks in all economic seasons.

As more and more people are becoming Internet natives and more self-directed when it comes to learning and exploring new things, LGI has made it simple for investors to invest in these funds through the online transactional platforms of its participating partners connected to its information portal “LGIDirect”.

“We’ve gone the extra mile to make our funds more accessible to investors at large by providing useful fund information online to help them make wise investment decisions, while linking our participating partners’ transactional platforms to our fund microsite. In today’s world where people meet most of their information needs online and complete transactions conveniently on the go, LGIDirect is an important step for us to connect to investors,” says LGI’s chief marketing officer, Mr Lim Shyong Piau.

There are merits in investing in a balanced fund that comes with lower cost of investment. To learn more about the LionGlobal All Seasons Fund (Standard) and LionGlobal All Seasons Fund (Growth), visit www.lgidirect.com.sg/allseasonsfund for more information. 

1www.businesstimes.com.sg/executive-money/balanced-funds-meant-for-the-lo...

2Sources:
www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-...
www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predicto...
www.vanguard.sg/documents/case-for-indexing-asia.pdf
www.vanguard.ch/documents/literature/case-for-indexing-ch.pdf

This publication is for information only. It is not a recommendation, offer or solicitation for the purchase or sale of any securities or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs. You should read the prospectus and Product Highlights Sheet which is available and may be obtained from Lion Global Investors Limited or its distributors, consider if a fund is suitable for you and seek advice from a financial adviser if necessary, before deciding whether to invest in a fund. Investments are subject to investment risks including the possible loss of the principal amount invested. The performance of a fund is not guaranteed and the value of the units in a fund and any income accruing to them may rise or fall. A fund may, where permitted by the prospectus, invest in financial derivative instruments for hedging or efficient portfolio management. Lion Global Investors® Limited (UEN/ Registration No. 198601745D).