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How to Choose the Best Performing Balanced Fund

Updated on January 20, 2021

Balanced funds are the smart tools for all those who are looking to buy the funds best for the market volatility. Investors can create a balance between reward and risk by diversifying. In this article, we will learn more about balanced funds.

What are the balanced funds?

Balanced funds are also called as hybrid funds as these mutual funds hold many underlying investment assets like bonds, cash and stocks. The asset allocation is usually fixed and works as an investment style.

Types of balanced funds:

There are three main types of balanced funds:

  1. Conservative balanced funds – They have a balance of stocks, cash and bonds which is apt for investors who prefer investing in a traditional way or those who are uncomfortable with the swing in prices. The asset allocation for such types of balanced funds is 5% cash, 60% bonds and 35% stocks.
  2. Moderate balanced funds – These funds are the best for the investors who are ready to take little market fluctuation. The asset allocation is 5% cash, 30% bond and 65% stocks.
  3. Aggressive balanced funds – These funds are suitable for the investors ready to take wide market swings. These balanced funds have the highest stock allocation. Aggressive balanced funds have allocation like 85% stocks and 15% bonds. A little diversification in bonds can cause price volatility, which is lower than the stock market.

Best Balanced Funds to reduce market volatility:

Every type of balanced funds can help to decrease volatility in comparison to the portfolio composed of 100% stock allocation. So the best-balanced funds will depend on the investors’ risk-taking capabilities and the investment objective. The funds that can perform well in bear markets when the prices of the stocks fall more than 20% is called conservative balanced funds.

Balanced funds apply the option of diversification. So when you are diversifying means, you are buying and holding the securities that perform differently from each other. The best diversification strategy is to hold investments that are not related to each other. To avoid the risk, you should have a combination of fund types like bonds and stocks that do not perform like each other. Another thing to consider is to balance the distribution of funds among different sectors which will indicate that the fund is properly diversified.

Balanced funds allow investors to buy one fund that is fully diversified. The real work for the investors is to pick the best-balanced fund according to their risk tolerance and investment objectives. However, investors should know that asset allocation for balanced funds is fixed and so they should not be confused by target-date retirement funds where allocations changes with time.


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