Balanced funds aim to provide steady growth while minimizing risk through diversification. They typically include common and preferred stocks, long and short-term bonds, cash assets, and money market holdings. The proportion of each component varies, and finding the right mix may require trial and error.
Balanced funds deal with the structure of an investment strategy involving mutual funds. The idea behind the balanced fund is to ensure a more or less equal balance between the types of investments that are part of the mutual fund. A balanced fund is believed to be in a good position to provide some sort of steady growth from one or more of the investments included in the mutual fund, while creating a low level of risk for the investor. Here’s some insight into what types of components typically make up a balanced fund and what to expect in terms of performance.
Since the strategy behind a balanced fund is to keep things proportionate, you will need some diversification in the types of investments represented in the fund. Common stocks are generally one component of a balanced fund that helps provide a consistent pattern of growth, without creating much in the way of risk to your investment. Other types of stocks are often included in mutual fund portfolios, such as preferred stock. Both long-term and short-term bonds are often included. Some cash assets and money market holdings are also often part of a balanced fund strategy.
It is important to note that a balanced fund does not mean that each component of the investment portfolio holds an equal percentage of the overall investment in the mutual fund account. This means that the expected risk factor and performance potential of each of the individual investments is based on the principle of proportion. This approach helps ensure that the fund generates some sort of steady growth, even if one or two constituents post a slight loss in any given month.
The idea is to find the right mix between the various components so that there is a reasonable expectation of growth, while minimizing the chances of any degree of loss in any part of the investment portfolio. It may be necessary to discover this type of balance with some trial and error on the investor’s part. Also, changes in the market can suddenly make a formally stable investment a wildcard, in which case the investor may need to locate a new component of a similar type to restore a balanced fund status.
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