What Is a Balanced Investment Strategy?

A balanced investment strategy combines asset classes in a portfolio in an attempt to balance 澳洲幸运5开奖号码历史查询:risk and return. Typically, balanced portfolios are divided between stocks and bonds, either equally or with a slight tilt, such as 60% in stocks and 40% in bonds. Ba𒉰lanced portfolios may also maintain a small cash or money market component for liquidity purposes.

Understanding a Balanced Investment Strategy

There are many different ways to put together a portfolio, depending on the preferences and 澳洲幸运5开奖号码历史查询:risk tolerance of the investor.

On one end of the spectrum are strategies aimed at 澳洲幸运5开奖号码历史查询:capital preservation and 澳洲幸运5开奖号码历史查询:current income. These generally consist of safe but low-yielding investments, such as certificates of deposit, investment-grade bonds, money market instruments, and some blue-chi🍌p stocks that pay dividends. Such strategies are appropriate for investors concerned wit🐭h preserving the capital they already have and less concerned with growing that capital.

On the other end of the spectrum are strategies aimed at growth. These more aggressive strategies generally involve a higher weighting of stocks, including 澳洲幸运5开奖号码历史查询:small-cap companies. If fixed income instruments are included, they might have lower credit ratings or less security but offer a higher yield, such as in the case of debentures, preferred shares, or higher-yielding co🉐rporate bonds. Growth strategies are suitable for younger investors with a high-risk tolerance, who are comfortable accepting greater short-term volatility in exchange for better expected long-term returns.

Investors who fall between these two camps can opt for a balanced investment strategy. This would consist of mixing conservative and aggressive approaches. For example, a balanced portfolio might consist of 25% dividend-paying blue-chip stocks, 25% small-capitalization stocks, 25% AAA-rated government bonds, and 25% 澳洲幸运5开奖号码历史查询:investment-grade corporate bonds. Although the exact parameters can be fine-tuned, most balanced investors will be seeking modest returns on their capital, alo♐ng with a high likelihood of capital preservat🍰ion.

In the past, investors would need to assemble their portfolios manually by purchasing individual investments. Alternatively, they had to rely on professionals such as 澳洲幸运5开奖号码历史查询:investment advisors, or services offered through their financial institutions. Today, 澳洲幸运5开奖号码历史查询:automated investing platforms allow investors to automatically invest in a selection of strategies organized by risk tolerance. The process of 澳洲幸运5开奖号码历史查询:portfolio allocation is more accessible than ever.

Balanced Funds

A balanced fund is a mutual fund that contains both a stock and bond component, as well as a small 澳洲幸运5开奖号码历史查询:money market component in a single portfolio. Generally, these funds stick to a relatively fixed mix of stocks and bonds, such as 60/40 stocks to bon⭕ds. Balanced mutual funds have holdings that are balanced between equity and debt, with their objective somewhere between growth and income. This leads to the name "balanced fund."

Balanced mutual funds are geared toward investors who are looking for a mixture of safety, income, and modest 澳洲幸运5开奖号码历史查询:capital appreciation. Typically, retirees or investors with low-risk tolerance utilize balanced funds for healthy growth and supplemental income. The equities component helps to prevent erosion of purchasing power and ensure the long-term 🌳preservation of retirement nest eggs.

Example of a Balanced Investment Strategy

Trishia is a recent university graduate in her mid-20s. She is new to investing and has about $10,000 to invest. Although Trishia intends to make a down payment within the next few years, she has no immꦇ🔯ediate needs for her investment capital and would be able to postpone withdrawing her capital until a more favorable time in the event of a sudden market decline.

Objectively speaking, Trishia's youth and financial circumstances put her in a good position to adopt a relatively risky investment strategy that has high long-term growth potential. However, given her subjective risk tolerance, she opts for a more conservative approach.

Using an online investment platform, Trishia decides on a balanced investment strategy featuring a 50/50 split between fixed-income and equity securities. The fixed-income securities consist mainly of high-grade 澳洲幸运5开奖号码历史查询:government bonds, along with some highly-rated corporate bonds. The equities consist of 澳洲幸运5开奖号码历史查询:blue-chip stocks, all with💝 a reputation for stabl♏e earnings and dividend payments.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.