Simply put, a Balanced fund class is a fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or conservative (higher fixed-income component) orientation.
Investopedia explains balanced fund class as a balanced fund which is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum.
Moreover, in balanced fund class, incorporating a proper asset mix is arguably the most important task any investor will ever undertake. Between determining what percentage of one’s investments should be invested in one asset class versus another and then picking the right investments to maximize long-term returns while minimizing risks, the average investor will find that investing really is a part-time job, at best. In most cases, keeping on top of one’s investment portfolio can take the fun out the investment process altogether.
One way to improve the investment process is to focus on investments that are more exciting or interesting to the investor. This often means specialty asset classes, such as small cap, international, or other specific asset classes.
For the rest of the portfolio (the core of the portfolio) such an investor would be wise to incorporate a actively managed balanced fund class. In fact, balanced funds work well for investors who might have absolutely no interest at all in managing the investment portfolio.
Here are some of the benefits that a partially interested investor will enjoy by putting the core of their portfolio in a balanced fund class are as follows:
1. Active Management: Balanced funds class will do exactly what the investor is expected to do. Some balanced funds are strategic in nature, meaning they will stick a specific strategy that sees strictly adhered-to limitations on how much assets are invested in which asset classes. This allows the investor with some interest in specialty assets to pursue their interests while remaining confident in the fact that the rest of their investment will not deviate from the strategic asset allocation.
2. Professional Research: Most individual investors have a tough time researching the right assets to hold in the core of their portfolio. This is normal; managing a portfolio while working a full-time job becomes difficult if not impossible. Balanced funds class enjoy different circumstances. While the investor labors at work to earn funds to save in their investment portfolio, balanced fund companies are managing, researching and analyzing the assets currently under management.
3. Ongoing Management: Even in strategic funds where the asset classes are pre-determined, the underlying assets can and will change with time. Fund managers will capitalize on opportunities as soon as they become available, in real-time. Most investors cannot enjoy such ongoing management until they are able to find the time available to dedicate to their investments.
As a conclusion, by investing in a balanced fund class, investors can not only minimize the risk to an infrequently-managed portfolio, but can enjoy the benefits can along with working with professional, full-time asset managers. In addition, allowing a professional to manage the core of their portfolio allows investors to spend time on the asset classes, if any, that appeal most to them. Although they are in the “asset allocation” family, balanced fund portfolios do not materially change their asset mix. This is unlike life-cycle, target-date and actively managed asset-allocation funds, which make changes in response to an investor’s changing risk-return appetite and age, or overall investment market conditions.