Balanced funds have to do with the structure of an investment strategy involving mutual funds. The basic idea behind the balanced fund is to make sure that there is a more or less equitable balance between the types of investments that are part of the mutual fund. A balanced fund is understood to be in a good position to provide some sort of consistent growth from one or more of the investments included within the mutual fund, while creating a low amount of risk to the investor. Here is some information about what types of components typically make up a balanced fund, and what to expect in the way of performance.
Because the strategy behind a balanced fund is all about keeping things in proportion, there will need to be some amount of diversification in the types of investments that are represented in the fund. Common stocks are usually one of the components of the balanced fund that helps to provide a consistent pattern of growth, while not creating much in the way of risk to the investment. Other types of stocks are also often included in the mutual fund portfolio, such as preferred stock. Both long-term and short-term bonds are often included. Some assets in the way of cash and holdings in a money market 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 commands an equal percentage of the overall investment in the mutual fund account. What it does mean is that the anticipated risk factor and potential for performance of each one of the individual investments is based on the principle of proportion. This approach helps to ensure that the fund results in some sort of steady growth, even if one or two components post a slight loss in a given month.
The idea is to find the right mix between the various components so that there is a reasonable expectation of growth, while still minimizing the chances for any degree of loss anywhere in the investment portfolio. This type of balance may have to be uncovered with some trial and error on the part of the investor. In addition, changes in the market may render a formally stable investment suddenly a wild card, in which case the investor may need to locate a new component of similar type to restore a state of a balanced fund.