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What's a Balanced Mutual Fund?


We’re all looking for a little balance in our lives.  At least that’s what the so called experts tell us to do.  Work…life balance.  Professional vs personal life vs family life.  Hey, it’s all one life in my book.  


Sure, we’re all trying to adjust the mix so we get the life we’re hoping for….the right balance.


In the world of investments, investors attempt to get the right mix of stocks and bonds and cash.  We like to give that a fancy name…asset allocation.


You can purchase individual stocks and bonds on your own, or like many Americans do, through professionally managed mutual funds.  There’s even mutual fund balance…a balanced mutual fund.


Let’s take a look.  We talked about mutual funds, and more specifically stock funds and bond funds in other videos.  In this one we’ll dive into balanced funds.


What exactly are we balancing.  The mix of stocks and bonds inside the mutual fund.  A stock fund is made up mostly of stocks…ownership of companies.  Bond funds mostly contain bonds from corporations and governments.  With bonds, you’ve loaned your money to that entity, for interest payments and return of your lump sum at maturity.


A balanced fund is a blend of both worlds…stock and bond…equity and debt.  A typical mix is 60% of the fund's holdings in stocks and 40% in bonds, or thereabouts.  Not exactly a 50/50 balance, but it could be.  Or as high as 70% stocks in rare cases.


Why mess around with a balanced fund when you could just buy a stock and a bond fund and create the mix yourself?  Well…some folks prefer simplicity and one stop shopping and a balanced fund could cover that.


A balanced fund would be considered less aggressive than a stock fund, yet more aggressive than a bond fund.  When the stock market is moving higher, a balanced fund would generally lag behind in performance.  But when the market moves south, a balanced fund’s bonds would typically cushion the fall and not fall as far as a stock fund.


The results…kind of like the weather.  Lower highs…and higher lows with no guarantees.