Balanced Funds

 

A balanced fund is a fund that invests in both equities and interest-bearing securities. The percentage distribution between the fund's share portion and interest rate varies between different balanced funds. Therefore, balanced funds generally have a lower risk than equity funds, but a higher risk than fixed income funds. 

By Viktor, co-founder of Bifrost - Apr 09 2019

Balanced Funds

 

A balanced fund is a fund that invests in both equities and interest-bearing securities.

 

The percentage distribution between the fund's share portion and interest rate varies between different balanced funds, and it may also vary over time within the same fund. Therefore, read what applies to the particular fund (s) that you find interesting.

This type of fund generally has a lower risk than equity funds, but a higher risk than fixed income funds. In a balanced fund, you combine a high expected return and higher risk (the share portion) with a lower expected return and lower risk (the interest portion).

What types of balanced funds are there?

What can usually set apart different balanced funds is the percentage distribution among the share portion and the interest portion of the fund.

But of course, it can also be what specific types of shares the fund owns in the share portion, and what interest-bearing securities the fund owns in the interest portion.

You should, therefore, as always, carefully read about what applies to the specific fund (s) that you find interesting and choose to look closer at.

Should one only have balanced funds in his portfolio?

When we as investors choose to create a portfolio, we should think about spreading our risks so that we are not particularly vulnerable if something occurs in an individual holding.

What is good about balanced funds is that they have a form of embedded risk diversification in the fund itself, since they own both shares and interest-bearing securities. This means that the risk decreases somewhat compared to an equity fund, while at the same time provide a potential opportunity for a higher return compared with an interest fund.

You can therefore only have balanced funds in your portfolio if you feel like it, but you can just as easily buy yourself into common equity funds and fixed income funds and choose percentage distribution yourself, and thus create your own balanced fund.

Important things to consider with a balanced fund!

It is not uncommon for the management fee of a balanced fund to be unreasonably high in relation to the total return and the risk taken (although the fees have been squeezed down some over the past few years).

The fund offering is large and there are balanced funds that offer good opportunities for good returns, but there are also those who are not worth the administration fee that you pay each year.

 

When the stock market is strong, balanced funds will most likely not go up as much and not as quickly, because they contain an interest-bearing part that does not yield such high returns. But on the other hand, it will not lose as much in value when the stock market goes down.

 

Viktor