What is a Balanced Fund?

A balanced fund is a mutual fund that invests in common stocks, preferred stocks and bonds. Balanced funds will invest in stocks, particularly, for appreciation and will then invest in bonds for income. This is done in order to give its fund holder a regular income while continuously increasing the principal. This is also done to alleviate some risk while still providing a nice return for the investor.

Balanced funds usually produce more income than stock funds. This is primarily due to the method that is employed. However, you may find that their total return is less than that which a stock fund returns if there happens to be a strong stock market at the time.

If there is a flat or falling stock market at the time, however, you may find more substantial returns from balanced funds and these may offset the disappointing returns from stock funds.

Balanced funds are also referred to as a kind of asset allocation fund. This type of fund allows for the change of money to be spread among asset classes that have one investment.

Depending on what the investor chooses and decides with the fund manager, the manager may be allowed to increase the bond position of the fund if he or she believes that it should be done. There are other types that have a fixed bond/stock composition that will not allow the manager to change it as he or she recommends.

When you have a portion of your fund in bonds you will find that it protects you from overwhelming declines in the net asset value if stock prices fall dramatically. You can add or subtract bond amounts depending on how the market reacts.

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