Balanced Funds: What You Need to Know Before Investing | Capital Group

Mutual Fund Basics

Balanced Funds: What You Need to Know Before Investing 

If you’re looking for a single fund with a diversified blend of both stocks and bonds, balanced mutual funds may be right for you. 

While mutual funds typically invest primarily in either stocks or bonds, a balanced fund can seek the best of both. It could be considered a hybrid — holding bonds for income and equities for growth. The portfolio manager maintains the asset mix consistent with the fund’s investment policies, so there’s no need for investors to constantly adjust allocations.

Potential Benefits

  • Keeps it simple for investors who don’t wish to choose from multiple mutual funds. Depending on your goals, a balanced fund can potentially be a single solid choice.
  • May be better able to withstand a variety of market conditions. When stock prices are falling, bonds may hold their value. Conversely, the stock market can provide gains when bond markets are weak.

Potential Risks

  • Balanced funds maintain a mix of stocks and bonds — 50/50 for instance, or 60/40. Depending on your time frame, you may need more growth to reach long-term goals or more stability to protect your assets.
  • Investors in balanced funds might not take full advantage of the gains during a bull market, as equity prices rise.

Reasons to Consider

  • Balanced mutual funds provide investors with broad diversification across stocks and bonds. Since those two asset classes often haven’t moved up and down in unison, being diversified across both stocks and bonds provides investors an opportunity to soften the effects of declines in one of those asset classes.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.