Legal Definitions - balanced fund

A balanced fund is a type of investment fund, typically a mutual fund, that invests in a diversified mix of different asset classes, most commonly stocks and bonds. The primary goal of a balanced fund is to provide a combination of capital appreciation (growth) and income, while also managing overall investment risk. It aims to achieve a "balance" between these objectives by allocating its investments across assets that typically behave differently in various market conditions.

Here are some examples to illustrate how a balanced fund works:

• Retirement Savings for a Mid-Career Professional: Sarah, a 45-year-old professional, is saving for retirement and has about 20 years until she plans to stop working. She wants her investments to grow significantly over this period but is also concerned about excessive market volatility. She decides to invest in a balanced fund that maintains an allocation of approximately 60% in stocks and 40% in bonds.

  This illustrates a balanced fund because the 60% stock allocation provides exposure to potential market growth, while the 40% bond allocation offers a degree of stability and income, helping to cushion against potential sharp downturns in the stock market. This mix aligns with her goal of long-term growth with moderate risk management.

• Conservative Investor Seeking Moderate Growth: David inherited a sum of money and wants to invest it for the long term. He is naturally risk-averse and would be very uncomfortable with large fluctuations in his investment value, but he still wants his money to grow beyond what a savings account offers. He chooses a balanced fund with a more conservative allocation, such as 40% stocks and 60% bonds.

  This demonstrates a balanced fund's flexibility in risk profile. The fund allows David to participate in the stock market's potential upside to a limited extent, while the larger allocation to bonds provides greater stability and a steady income stream, significantly reducing the overall risk compared to an all-stock portfolio and aligning with his lower risk tolerance.

• College Savings for a Child: Maria and John are saving for their daughter's college education, which is about 10 years away. They need their investment to grow over the next decade but also want to protect the accumulated capital as the college enrollment date approaches. They invest in a balanced fund that aims for a 50% stock and 50% bond allocation.

  This example highlights how a balanced fund can be suitable for a mid-term financial goal. The equal split between stocks and bonds allows for reasonable growth potential over the 10-year horizon, while the substantial bond allocation helps to mitigate significant losses, providing a more stable path towards their savings target compared to a fund solely focused on aggressive growth.