An Independent Voice That Advocates For The Classroom Educator Without The Corrupting Politics Tied To Our Union And DOE Leadership.
Saturday, September 15, 2018
Why Is The TRS Balanced Fund A Bad Investment?
This year TRS shut down the low performing Bond fund and replaced it with a Balanced fund option for risk-adverse investors. Before investing in the TRS Balanced Fund, please read why I don't believe it's a good investment option.
Most balanced funds usually have between 50% to 70% equities and 30% to 50% bonds and cash equivalents. Historically, equities average about 7%, after fees and short-term bonds and cash equivalents usually returns about 3%, Therefore, the average historical return for a typical balanced fund is approximately 5%.
However, we are probably at the tail end of a bull run in equities and realistically, we should expect single digit returns of about 5%. Moreover, with slowly rising interest rates, bond funds will struggle to have positive returns and just like this year, one can expect negative returns. The result is that the TRS Balanced Fund expected return will only average about 4% for the near term.
Compare that to the TRS Fixed Income Fund that gives us a guaranteed 7% return with no fees! Why would any risk-adverse member take a chance on the Balanced Fund when the TRS Fixed Income Fund gives a better return?
For members willing to take risks, there is always the TRS equity funds and this is a way to fight off the effects of inflation.