Creating a balanced strategy using ETFS

A balanced strategy is the core of any portfolio that wants to preserve and grow wealth over the long term. Here is how it is done best.

Developing a 60% equity and 40% bond strategy using ETFs and a few select funds is an excellent way of building your core portfolio. It gives you exposure to capital gains and income. It combines long term capital preservation and growth.

What is the goal?

The goal of this strategy is to maintain a consistent CORE allocation to bonds and equity markets and to remain invested fully.

The role of the manager is to monitor the components of the portfolio and to provide risk management advice in terms of exposure to the mandate.

Should markets fall, the manager will inform the client and help identify an entry strategy to add funds to the balanced mandate.

If markets appear over-stretched and are losing momentum, the manager can alter the ETF exposure from time to time inside the balanced portfolio.

Looking at a Core balanced portfolio from before the Great Financial Crisis in 2008: the portfolio returns still average above 10% per annum despite all the falls. These returns include 2008, 2011 and the 2020 drops in the market. The portfolio has used a simple monthly rebalancing strategy.

If you had invested with courage in early 2009, post the Financial crisis, your returns would compound at a rate of 14% p.a., an unbelievable result for a balanced portfolio.

By developing a strong liquid core strategy delivering 10% returns over the long term, you will not need much more to achieve your long term financial goals.

The rule of thumb for investors is to maintain discipline and source a good advisor. This advisor should be aligned with your needs, manage the risks in your portfolio, and ensure you stay invested for the long term.

The biggest risk to all strategies is fear and greed. It causes you to stray from a set path and to get lured by the sirens of Wall Street - Bloomberg and CNBC, into trading actively and getting into speculative investments.

Don't look at your portfolio every day. Try and space out your reviews to monthly or quarterly and have your advisor do the daily monitoring.

Too many cooks spoil the broth: try to have one independent advisor who is not related to banks to give you long term consistent unbiased advice.

Sandip Aggarwal

Founder & CEO