That, in turn, led many risk-averse investors to shun the classic 60% stocks/40% bonds paradigm and seek separate alternatives to bonds in more-exotic fixed-income and hedged funds to reduce portfolio volatility. Many hired financial advisors to “optimize” their portfolios with the right mix of high-yield, floating-rate, real estate, and options-writing funds.
But as painful as 2022-23’s rate increases were, they made life much simpler, with Treasury bonds now yielding upward of 4% and high-quality corporate bonds over 5%. “There are a lot of really good [balanced] funds out there,” says Jason Kephart, Morningstar’s director of multi-asset fund ratings. “The interest-rate environment makes the funds’ fixed-income portfolio a lot more attractive than it has been in the past.”
By buying a single allocation fund, you could say goodbye to your financial advisor and save on fees. Or, if you’re more sophisticated, you could use an allocation fund to streamline your portfolio, retaining only those ancillary funds that truly make a difference. Boring balanced funds tend to be cheaper than highly specialized ones, so they’re a good core investment.
