What Is a Good Return on a Balanced Portfolio?

You probably think the answer to "what is a good return on a balanced portfolio?" is as simple as hitting a certain percentage. But here's the twist—it's not just about a number. The question is deeply tied to your financial goals, time horizon, risk tolerance, and how you react to market volatility. In fact, trying to pin down an exact "good" return can lead to frustration or unrealistic expectations. Let’s dive deeper into understanding what makes a return "good," and why balancing risk and reward is key.

What Does "Balanced" Really Mean?

A balanced portfolio typically combines a mix of assets, like stocks, bonds, and perhaps even alternative investments. The goal? Risk management. You’re not chasing high returns, but rather aiming for consistent growth over the long term with limited exposure to significant downturns. A traditional balanced portfolio might have a 60/40 split between stocks and bonds, though this can vary depending on your specific situation.

So, when we talk about returns, we’re looking at the gains you make relative to the risk you’re taking on. For most investors, an average return of 5-7% per year is often considered a solid benchmark for a balanced portfolio. But here's the rub: some years, you might hit 10%, and in others, you could see 1% or even a slight loss.

Expectations Versus Reality: Adjusting Your Mindset

Imagine walking into a casino with the mindset that every pull of the slot machine will pay out a winning jackpot. Unrealistic, right? Yet, many investors think the same way when it comes to their portfolio. Investing is not a straight line, and understanding this can save you from making emotional, costly decisions when your portfolio underperforms.

Here’s where understanding long-term averages comes into play. If the average stock market return is around 7% per year, a balanced portfolio that incorporates safer assets like bonds will naturally return less. But here’s the good news: this mix also provides stability during downturns, reducing overall volatility. In 2008, during the financial crisis, a portfolio of 100% stocks might have dropped nearly 40%, while a balanced portfolio would have weathered the storm much better.

The Role of Diversification

What do you think happens when you put all your money into one stock or one asset class? You guessed it—you’re at the mercy of that single investment's success or failure. In contrast, diversification spreads out your risk. Even if a few investments don’t perform well, others might pick up the slack.

Take this for example:

Asset Class	Average Annual Return	1-Year Worst Performance	1-Year Best Performance
Stocks	10%	-40%	+50%
Bonds	3%	-10%	+15%
Real Estate	7%	-20%	+30%

Notice how the stocks have the highest potential return, but also the highest risk? Bonds, on the other hand, offer much more stability, which is why they are a staple in a balanced portfolio. A mix of these assets helps you ride the waves of market changes without capsizing your entire financial plan.

Why "Good" Depends on You

There’s no one-size-fits-all answer. A young investor saving for retirement may define "good" as an 8% return because they have the luxury of time to recover from market fluctuations. A retiree living off investments might prioritize capital preservation, so a 4% return would suit them just fine, particularly if they are aiming to beat inflation without taking on excessive risk.

The question you should really ask yourself is, "What is my portfolio doing for me, relative to my goals?" A 6% return might not sound like much, but if it’s helping you retire early or fund your kids' education, that’s a great return.

The Psychological Game: Handling Volatility

If you’re like most people, you probably don’t enjoy the gut-wrenching feeling of seeing your portfolio value drop. But here’s the kicker—volatility is part of the game. A balanced portfolio helps you mitigate the wild swings of the stock market by incorporating more stable assets. However, it’s crucial to train yourself to handle those inevitable ups and downs.

Consider this scenario:

• Investor A has a 100% stock portfolio and sees a 30% decline during a bear market. Emotionally, they sell everything out of panic.
• Investor B holds a balanced portfolio and sees only a 10% decline. While it’s still a loss, they ride out the storm, eventually recovering when the market rebounds.

Guess which investor is better positioned for long-term success? Investor B.

Your ability to stick to your strategy during tough times is a bigger determinant of success than chasing high returns.

Historical Context: What Has Worked in the Past?

Looking back over the past century, a balanced portfolio has consistently delivered reliable, inflation-beating returns. While the exact mix of assets has evolved over time, the core principle remains the same: balance risk with reward.

For instance, from 1970 to 2020, a portfolio with 60% stocks and 40% bonds returned an average of 7.2% annually. Yes, there were bad years (like 2008), but the average tells a different story. It’s the long game that matters, and a balanced approach ensures you're better protected from major losses while still capturing gains during boom periods.

Tailoring Your Strategy: Active vs. Passive Management

The next consideration is how you manage this portfolio. Are you an active trader looking to outpace the market, or do you prefer the "set it and forget it" approach? Passive investing, through index funds, generally works well for balanced portfolios. These funds are designed to track market indexes, providing broad exposure to both stocks and bonds.

For those inclined towards active management, picking individual stocks or bonds might give you higher returns in certain years, but it also introduces more risk and requires significant time and expertise. Over the long term, passive strategies have shown to be highly effective for balanced portfolios, especially when factoring in lower fees and reduced stress.

What About Inflation?

A crucial factor often overlooked is inflation. If your portfolio returns 5%, but inflation is running at 3%, your real return is only 2%. This is why aiming for a higher nominal return, without taking on too much risk, is so important. Many financial advisors recommend a balanced portfolio to not only beat inflation but also preserve capital during times of economic uncertainty.

Key Takeaways for Long-Term Success

So, what is a good return on a balanced portfolio? It’s not a magic number, but rather a combination of factors:

1. Risk tolerance – Know what you can stomach.
2. Time horizon – The longer you stay invested, the better your chances.
3. Diversification – Don’t put all your eggs in one basket.
4. Emotional discipline – Stay the course, even during downturns.

Remember, a balanced portfolio isn’t designed to make you rich overnight. Instead, it’s built to grow your wealth steadily and reliably over time, while minimizing the risk of catastrophic losses.