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What Are Balanced Mutual Funds?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 13, 2022

In a balanced mutual fund, you have the benefit of being able to buy one stock instead of finding several stocks that add up to your desired investment amount. Balanced funds aim to produce income and capital gains from a variety of assets while limiting risk by diversifying among different types of securities.

Balanced funds can be set up as trust accounts or unit investment trust accounts. A balanced fund can also exist as an open-end or closed-end fund, which is a mutual fund with shares that are bought and sold at set prices on the stock market.

How Do They Work?

Balanced funds work by taking a relatively large chunk of the investment and dividing it among many companies. That way, instead of worrying about multiple stocks, you only have to worry about one stock in order to get the same amount of money from your investments. Also, when you buy shares from a balanced fund, you are diversifying into a number of different markets and industries.

Why Should I Use Them?

There are a few reasons you should consider using a balanced mutual fund:

Risk

A balanced fund offers the potential for capital appreciation and income while also providing stability by being less volatile than owning individual stocks.

Ease of Investing

With a balanced fund, you can invest a small amount of money and still own a diversified portfolio.

Diversification

Balanced funds offer exposure to a number of different asset classes, including stocks, bonds, and cash. This helps reduce risk in your overall portfolio.

Flexibility

Balanced funds offer investors the ability to dial-up or down the risk in their portfolio by adjusting the percentage of assets they have in stocks and bonds.

Tax Efficiency

Because balanced funds invest in a number of different asset types, they tend to produce lower taxes than owning individual stocks.

How Much Money Will It Take To Invest In A Balanced Fund?

The amount of money you need to start investing in a balanced fund will depend on the particular fund and the fees that are associated with it.

However, balanced funds allow you to invest smaller amounts of money than other types of mutual funds and still get the diversification benefits.

Benefits of Using a Balanced Fund

There are many benefits to using a balanced fund. Some of the benefits include:

  1. Risk Reduction: Balanced funds are designed to provide stability and reduce risk by diversifying among different types of securities.
  2. Diversification: Balanced funds offer exposure to a number of different asset classes, including stocks, bonds, and cash. This helps reduce risk in your overall portfolio.
  3. Flexibility: Investors have the ability to dial up or down the risk in their portfolio by adjusting the percentage of assets they have in stocks and bonds.
  4. Tax Efficiency: Balanced funds tend to produce lower taxes than owning individual stocks.

Drawbacks Of Using A Balanced Fund

There are a few drawbacks to using a balanced fund:

  1. Fees: Many balanced funds charge fees, which can reduce the overall return on your investment.
  2. Lack of Control: Investors in a balanced fund do not have as much control over their investment as they would if they owned individual stocks.
  3. Performance: Balanced funds are not guaranteed to outperform the stock market or individual asset classes.
  4. Underperforming Assets: A balanced fund may hold some assets that are not performing as well as others, which can reduce the overall returns of the fund.

The Bottom Line

Balanced funds offer investors a number of benefits, including risk reduction, diversification, and tax efficiency. They are an excellent option for investors who want to invest a small amount of money and still get the benefits of diversification. Investors should also consider balanced funds if they are looking for an easy way to invest their money that does not require a large initial investment or ongoing research on the market.

However, investors should be aware of potential drawbacks to using balanced funds, including fees and performance volatility. Finally, it is important to remember that there are no guarantees of future performance for balanced funds.

Balanced mutual funds can be a great addition to any portfolio, but they are not the only type of fund available. Other types of funds you may want to consider include index mutual funds and actively managed mutual funds.

Balanced mutual funds are a type of mutual fund that invests in a mix of stocks, bonds, and cash. They offer investors the benefits of diversification, risk reduction, and tax efficiency.
Balanced mutual funds invest in a mix of assets, which can include stocks, bonds, and cash. The weight of each asset in the fund will vary depending on the particular fund's investment objective.
Many investors choose balanced mutual funds because they are typically designed to provide some stability to an erall portfolio. Balanced funds can produce lower taxes than owning individual stocks and bonds, and they offer benefits of diversification.
The amount of money you need to start investing in a balanced fund will depend on the particular fund and the fees that are associated with it. However, balanced funds allow investors to invest smaller amounts of money than many other types of funds
Some of the benefits of using a balanced fund include lower taxes, diversification, and risk reduction. Balanced mutual funds can also offer investors some stability to an overall portfolio.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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