What is balanced funds?
Mutual funds are classified by the asset class of investments they own. Most of the mutual funds are owned by stocks, they are called equity funds. Some mutual funds own bonds, they are called bond funds or fixed income funds. Some mutual funds own both stocks and bonds, these funds are called balanced funds.
A balanced fund combines stock components, bond component and sometimes a money market component in a single portfolio. These hybrid funds stick to a relatively fixed mix of stocks and bond which reflect either a moderate or high equity component, conservative or high-fixed income, component orientation. Balanced funds are geared toward investors who are looking for a combination of safety, income and modest capital appreciation. An amount of this type of mutual fund is invested in each asset class that usually should remain within a set minimum and maximum. Balanced fund portfolios do not materially change the asset mix. This is unlike life-cycle, target-date and actively managed asset allocation funds that make changes in response to an investor’s changing risk-return appetite and age or overall investment market conditions. An investor can look into the best balanced mutual funds before investing in them so they will get assured results.
As balanced funds rarely have to change their mix of stocks and bonds, they tend to have lower total expenses. Since they automatically spread dan investor’s money across a variety of types of stocks, they minimize the risk of selecting the wrong stocks of sectors. Choosing a top balanced fund will be difficult, but these funds for retirement will allow investors to withdraw money periodically without upsetting the asset allocation.
Any investor who is interested in balanced funds should also take a look into what is hybrid fund. Balanced funds are similar to bond funds but they also include different amount of non-debt instruments like preferred stock, common stock or real estate. These funds usually produce high returns than money market and bond funds but are still relatively conservative, investing in securities from established, creditworthy companies which make consistent dividend payments. Bond funds, balanced funds can cover a wide spectrum of holdings. Some stay heavily invested in low-risk and risk-free securities. It is crucial to read the prospectus of a balanced fund to understand the types of instruments the fund manager invests in. The wide variety of balanced funds provide different alternatives to investors. The volatility of balanced funds will mean they are not recommended for investors who invest for a year or less. But investors who need regular, long term cash inflows that often choose balanced funds because they can boost returns and help diversify the bond heavy portfolios.
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