Just as an investment allocation often includes a bond position, balanced funds can be considered investments with the bond allocation made for you. Some funds allow the fund manager to increase the bond position of the fund when he or she believes that market conditions warrant it. Others may have a fixed bond/stock composition.
The bond portion of the balanced fund tends to protect you from large declines in net asset value when stock prices crash. For that reason, balanced funds are considered more conservative than equity funds are However, they also tend to underperform when stocks do well. Hence, most investors would be better off to keep an eye on their investments and add bonds when the market gets choppy.
Read the prospectus of the fund to understand how it is balanced and how its bond position can change.
Related Fool Articles
Recent Mentions on Fool.com
- Why "Set It and Forget It" Doesn?t Work for Retirement Savings
- How Apple, Inc. (AAPL) Repurchased $17 Billion in Stock Without Issuing More Bonds
- Could Arena Pharmaceuticals Inc. Be Running Out of Money?
- 5 Things Thermo Fisher Scientific Inc.'s Management Wants You to Know
- 1 More Advantage Apple Pay Has Over The Competition
- Prize-linked Savings Accounts: Coming to Your Bank?