The Definition Of a Balanced Mutual Fund

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KikyLife - What is the definition of a balanced mutual fund? A mutual fund that is considered balanced traditionally are a combination of stocks, bonds, and cash holdings. The goal being not only creating an income stream but capital conservation and capital appreciation.

Not too many people use the term balanced any more though, it is a bit old school. The current terminology is asset allocation.

A good mutual fund will allow you to easily diversify your money by holding the stocks and bonds already mentioned but also across different sectors of these holdings and even in many different countries. I would imagine if you want to you could try to put your own mutual fund together but I am equally sure that there are some out there that have what you want already put together so give yourself a break and take the shortcut.

A balanced mutual fund portfolio should encompass a few different funds with multiple investment objectives addressed. Some mutual funds do this automatically so you will not need to direct the fund manager to do this for you. There are so many different combinations available that to try to understand them all will literally make your head spin.

Do your research and find a couple that you are interested in and call to have them send you their prospectus. If you do not understand the terminology then find someone to explain it to you. You cannot go off half-cocked when it comes to planning your future. If you do not know something then ask.

Once you have understood the prospectus then you can make a better-informed decision regarding how you want to proceed. Some things to consider in your decision-making process is the percentages the mutual fund uses. 50/50 is a good percentage.

All you have to do once you have made your decision is to plunk down the money. The mutual fund manager handles the rest for you. By handling the purchase of the stocks and bonds and other holdings the ratios stay intact and you can just sit back and watch it grow.

Like I said the term balanced isn't always used anymore so keep your eyes open and realize that the terms asset allocation, blend or even a year number are often used these days. A fund using a year number will usually have more bonds than stocks and the closer the year gets to the year on the fund then the better it will perform. Do not take what I say as Gospel either, Do your research then make your decision.

Keep in mind that even though you have a balanced mutual fund that it can't suffer losses or that it will be less volatile than other stocks. This is just not true, you can suffer the same fate as other more risky stock ventures. One way to combat this is to invest in several different types of mutual funds, some risky and some more conservative to reduce your risk.