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The New Balance: A New Approach to a Balanced Account

The classic balanced portfolio includes both stocks for growth and bonds for a buffer against the volatility of stocks. But with interest rates rising, bonds may have lower returns than they have over the last 30 years. This has led investors to consider alternatives to the classic balance of stocks and bonds.

You could increase your exposure to stocks in an attempt to compensate for potentially lower returns from bonds, but this could increase the volatility of your portfolio and may make it difficult to stay invested in challenging markets. You could also hold cash instead of fixed income, since cash can be a buffer against the volatility of stocks, but most investors prefer bonds because bonds have higher gain potential over time.

Here’s what we call the new balance: a portfolio that includes stocks, bonds and our Tactical Upgrader Fund (TACTX).

How to complement a portfolio of stocks & bonds

TACTX is a hedged equity portfolio that attempts to bridge some of the gap between the volatility of stocks and the relatively low yield of fixed income. TACTX seeks to be less volatile than a fully invested portfolio of stocks and it also has less interest-rate risk because it typically has little exposure to bonds. The fund aims to provide some of the growth potential of equities without fully participating in sharp stock market advances or declines.

TACTX’s gains and losses may be independent of near-term stock and bond market performance, so it may complement a balanced portfolio of stocks and bonds.

A new approach to a balanced account

One way to invest in the new balance is to own the Upgrader Fund (FUNDX) for growth; the Flexible Income Fund (INCMX) for fixed income; and the Tactical Upgrader Fund (TACTX) for further diversification.

This combination seeks to produce moderate returns with limited risk, which can help investors ride through potentially low-returning periods for bonds and through volatile periods in the stock market.

The charts below show the value of adding hedged equities to your balanced account. This equally weighted portfolio (one third in FUNDX, one third in INCMX and one third in TACTX) generated solid returns over the last seven years, and it never had a negative calendar year from 2010 to 2016. As shown below, it had a narrower range of returns than a stock fund portfolio, and it outperformed a bond fund portfolio, even as interest rates rose.

If you are seeking to reduce fixed income exposure but are not ready to embrace the volatility of greater, direct stock market exposure, this portfolio may be for you.

The chart shows the maximum and minimum calendar-year returns and the average annual returns for FUNDX, INCMX and the New Balance (FUNDX, INCMX and TACTX). It assumes reinvestment of dividends and capital gains. This chart does not imply future performance. As of March 31, 2017, FUNDX returned 11.47% for the trailing one year; 9.39% annually for five years; and 3.93% annually for 10 years. INCMX returned 5.76% for the trailing one year; 3.62% annually for five years; and 4.02% annually for 10 years. TACTX returned 10.59% for the trailing one year and 3.98% annually for five years. TACTX returned -0.41% since its Feb. 28, 2008 inception. The gross expense ratio for FUNDX, INCMX and TACTX is 1.79%, 1.50%, and 1.70%, respectively. Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained at

Click here for standardized performance of FUNDX, INCMX and TACTX.


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