What Is a Balanced Fund?

A balanced fund is a mutual fund that typically contains a component of stocks and bonds. A mutual fund is a basket of securities in which investors can purchase. Typically, balanced funds stick to a fixed 澳洲幸运5开奖号码历史查询:asset allocation of stocks and bonds, such as 70% stocks and 30% bonds. Bonds are debt instruments that usually pay a stable, fixed rate of retur🦋nඣ.

The investment objective for a balanced mutual fund tends to be a 澳洲幸运5开奖号码历史查询:mixture of growth and income, which leads to the balanced nature of t💜he fund. Balanced mutual funds are geared toward investors who are look🐲ing for a mixture of safety, income, and modest capital appreciation.

Understanding Balanced Funds

A balanced fund is a type of 澳洲幸运5开奖号码历史查询:hybrid fund, which is an investment fund characterized by its diversification among two or more asset classes. The amounts the fund invests into each 澳洲幸运5开奖号码历史查询:asset class usually must remain within a set minimum and maxim🌌um value. Another name for a balanced fund is an asset allocation fund.

Balanced fund portfolios do not materially change their asset mix, unlike 澳洲幸运5开奖号码历史查询:life-cycle funds, which adjust the hold▨ings to lower the risk as an investor's retirement date approaches. Balanced funds also differ from actively managed funds, which may evolve in response to the investor's changing risk-return appetite or overall investment market conditions.

Elements of a Balanced Fund Portfolio

Retirees or investors with low-澳洲幸运5开奖号码历史查询:risk tolerance can utilize balanced funds for healthy growth and supplemental income. The elements of ba🐓lanced funds include a mixture of stocks and bonds.ꦑ

Equity Component

The equity component helps to prevent erosion of purchasingꦍ power and ensure the long-term preservation of retirement nest eggs.

The equity holdings of a balanced fund lean toward large equities such as the ones found in the 澳洲幸运5开奖号码历史查询:S&P 500 Index, which contains 500 of the largest publicly traded companies in the United States. Balanced funds may also include dividend-paying co🍬mpanies. Dividends are cash payments made by companies to their shareholders as a reward for owning their stock. Companies that consistently pay dividends over the long term tend to be well-established and profitable.

Bond Component

The ꧋bond component of a balanced fund serves two purpos﷽es.

1. Creates an income stream
2. Tempers portfolio 澳洲幸运5开奖号码历史查询:volatility, which is the price fluctuations from the equity component

澳洲幸运5开奖号码历史查询:Investment-grade bonds such as AAA 澳洲幸运5开奖号码历史查询:corporate debt and U.S. 澳洲幸运5开奖号码历史查询:Treasuries provide interest income through semi-annual payments, while large-company stocks offer quarterly dividend payou♚ts to enhance yield. Also, rather tha✤n reinvest distributions, retired investors may receive cash to bolster their income from pensions, personal savings, and government subsidies.

While they trade daily, highly graded bonds and Treasuries don't usually experience wild price swings that equities may experience. As a result, the stability of the fixed-interest securities prevents wild jumps in the share price of a balanced mutual fund. Also, debt security prices do not move in lockstep with stocks and can move in the opposite direction. This bond stability provides balanced funds with ballast, further smoothing out its portfolio's investment return over time.

Advantages of Balanced Funds

Because balanced funds rarely have to change their mix of stocks and bonds, they tend to have lower total expense ratios (ERs), which represent the cost of the fund. Moreover, because they automatically spread an investor's money across a variety of types of stocks, market risk is minimized if certain stocks or sectors 澳洲幸运5开奖号码历史查询:underperform. Finally, balanced funds allow investors to🌳 withdraw money periodically without upsetting the asset allocation.

Disadvantages of Balanced Funds

On the downside, the fund controls the asset allocation, not the investor, which might not match an investor's tax-planning strategy. For example, many investors prefer to keep income-producing securities in tax-advantaged accounts and growth stocks in taxable ones, but you can't separate the two in a balanced fund. Also, investors can't use a 澳洲幸运5开奖号码历史查询:bond laddering strategy—buying bonds with staggered maturity d🦂ates—to adjust cash flows and repayment of principal according to their financial situation.

The characteristic allocation of a balanced fund—usually 60% equities, 40% bonds—may not always suit an investor's financial goals since needs and preferences can change over time. Some balanced funds play it too safe, avoiding international or outside-the-mainstream markets, which can hobble their returns.

Real-World Example of a Balanced Fund

The Vanguard Balanced Index Fund Admiral Shares (VBIAX) has a below-average risk rating from Morningstar with an above-average reward profile. The fund's allocation consists of 60% stocks and 40% bonds. Over the past 10 years—as of April 30, 2022—the fund has returned 8.73% annually. The Vanguard Balanced Index Fund Admiral Shares has an expense ratio of 0.07% and a $3,000 minimum investment amount.