Investors need to be well aware of the kind of investment they are putting their money into. This calls for proper analysis as well as enhanced understanding of what a majority of the terms and concepts really refer to. Mutual funds are a type of investment that have with them a number of differing concepts, and which could help an investor make very informed and up-to-date choices on the kind of investment they want to make.
A balanced mutual fund is a concept that refers to a type of investment which includes a little bit of stock components, bond component as well as the money market component, all combined in one category. They are a type of hybrid that can either be of high equity or conservative/higher fixed income component orientation. In either case, the main aim of balanced investments is to provide investors with a combination of safety, meaning that the risk is evenly spread, income and potential value appreciation.
Since stocks, bonds and money market investments carry different amounts of risk, having them combined into a single component means that the risk is evenly spread and they all help each other balance especially in the hard economic times when the prices seem not to be doing so well. They also give the investors a perfect opportunity to engage in a form of a one-stop shopping, where they can get all they are looking for in a single investment.
Balanced mutual funds also provide an excellent opportunity for the investment manager to engage in market timing, which is nothing more than knowing when to increase or decrease the allocation of shares through stocks, fixed income or cash. A manager is able to gauge when stocks are going to increase in value and he can thus adjust his stocks or fixed income appropriately to keep up with the market values.
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