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Title: 3 things you need to know about balanced funds


Title: 3 things you need to know about balanced funds


Balanced funds are mutual funds that have exposure to two primary asset classes, primarily: Equity and Debt. For example, A Mutual Fund boasting 60% investment in stocks and 40% in bonds would be a perfect example. By diversifying into equity and debt, a balanced fund can ensure better risk vs. reward compared to a pure-asset fund. Just like any other regular fund, a balanced fund is also maintained by a fund manager. This means you can rest assured about your investment and do not need to keep checking up on its performance day in and day out. Unfortunately, the concept of Balanced Funds is too good to be true. Here are 3 things you should know.

1. The perfect balance

The market is unpredictable and can change its winds at the drop of a hat. Hence, it is vital to invest in a mix of uncorrelated assets, which will ensure a diversified portfolio.

For Example: If you were to only invest in the Power and Steel industry in terms of stocks, funds, and commodities, your assets would be poorly diversified. A shift in the industry and your portfolio will be worthless. On the other hand, investing in different, unrelated companies and industries will contribute to building a great portfolio. Unlike a major chunk of mutual funds that only focus on equity or debt, a balanced fund helps to mitigate risk by diversifying across industries and asset classes.

If there was any economic up or down, it has been observed that equities tend to outperform bonds. This is because major companies can grow exponentially, provide higher dividend pay-out, and significantly increase their share value. In contrast, bonds can only fetch returns with interest.

The reverse of the same situation holds when the economy falls. Since bonds are debt instruments, companies must, by law, make repayments irrespective of the market conditions. Hence, this ensures a steady flow of income no matter what the condition. But, unfortunately, the value of equity in this same case is not always favorable.


By combining both these said asset classes, balanced funds can strike the perfect balance between wealth growth and wealth preservation, respectively, the return on balanced funds may sometimes be less than that of equity. Still, it will be much greater than just bonds. Moreover, these funds will also fetch a return greater than inflation and ensure prosperity in difficult times.

For investors in their 40’s, balanced funds are a great idea as it lets you diversify and grow your wealth for retirement without taking huge risks and jeopardizing any future financial goals. Another plus of investing in balanced funds is that it removes the need to invest in separate funds for equity or debt. This also makes it easier to assess the performance of your portfolio and execute various strategies.

2. Completely professionally managed

Balanced funds are managed by experienced financial professionals who have the training, intuition, and skill to pick the various assets to ensure the best returns possible. This is a great option to consider if you are a novice investor or do not have time to keep up with the market. Another plus by investing in this type of fund, you will not need to spend hours rebalancing your portfolio or deciding between assets. It will already be done, and that too on time. Since diversification and re-balancing needs a niche kind of knowledge, it’s better left to the professionals.

3. One for all, but not all for one

Though balanced funds seem like the best option out there, they may not be the perfect fit for every investor out there. Since less than 50% of the balanced funds invest in bonds, they will only likely not outperform pure equity-based funds. This can be quite a hurdle for many investors. If you are in the market for active funds which can fetch higher returns, these kinds of funds may not be the first choice.

Suppose you wish to have direct control over your investments regarding what and where your money should be allocated; balanced funds are not the right option. If you are only looking to protect your wealth, balanced funds are also not a good option. For Example, An investor in his late 60’s will not be focusing on growing his wealth but only on protecting it. Rather than risk, he would prefer a consistent return.

Balanced funds are developed and designed for passive investors who wish to grow their wealth over a long period of time. Over the past few years, it has been gaining popularity due to its many advantages: professional management, higher returns, long-term growth, and simplicity to use and manage the system. It is important to evaluate your risk profile and financial needs as an investor and figure out if balanced funds are the right fit for you.

Calvin M. Barker

Typical tv scholar. Problem solver. Writer. Extreme bacon fan. Twitter maven. Music evangelist. Spent a year consulting about salsa in Fort Lauderdale, FL. Spoke at an international conference about lecturing about junk food in New York, NY. Earned praise for promoting robotic shrimp in Phoenix, AZ. Spent 2002-2007 working on catfish in Naples, FL. Spent several months developing yogurt in Orlando, FL. Spent high school summers managing dandruff in Africa.