Simplicity is a virtue; people all over the world are trying to pare down the complexities of life to focus on the important things. The virtue of simplicity is also important in people’s financial lives, but instead, many people have a stock or two with one broker, a bunch of mutual funds and several bank and high yield money market accounts.
You can simplify your investments with balanced mutual funds. These funds offer simplicity, diversification and a mix of stocks and bonds that usually hold up well in difficult markets.
Balanced funds typically hold between 40 to 60 percent of their investments in stocks and the remainder of the fund is a mix of bonds and cash. Most funds leave the precise mix of stocks and bonds in the hands of the fund manager within limits set by the funds prospectus. These funds can satisfy the more conservative investor, who might look for a fund that holds 60 percent of its assets in bonds and the growth investor, who can look for a fund that holds 60 percent of its assets in stocks.
Because of the mix of stocks and bonds, the funds provide wide diversification. Diversification across stocks and bonds improves fund safety by not keeping large portions of the funds assets in one basket. Funds rarely hold more than 2-3 percent of their assets in one stock or bond.
And in rough markets and during a recession, balanced funds usually hold up well. It’s rare for both stocks and bonds to crash at the same time, and the income from bonds and cash equivalents, like treasury bills, help stabilize the fund in down markets.
Bond funds have limited potential for growth, but the addition of stocks means that a fund owner can take advantage of economic growth, another advantage of a fund made up of both stocks and bonds.
If you want to add simplicity to your financial life, a balanced fund can help you do just that.
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