Defining balanced investment strategy
Balanced investment strategies make a portfolio wherein risk and return are equal. A balanced portfolio means an even amount of stocks and bonds.
Stock makes a portfolio grow, while a bond offers stability that balances an investment.
Related business strategies
Let us review other business strategies that investors use to understand balanced investment strategy more. They are not as aggressive and as risky as growth-oriented strategies.
For example, a capital growth strategy focuses on raising the investment’s worth in the long run. It is an aggressive way that expects a high return while preventing losses.
A current income strategy is selecting investments that generate returns more than the average. The focus is on incomes that come from portfolios that may be in dividends or interests.
When a company preserves capital, they are on the conservative side. The primary goal is to avoid losses in their portfolio and turn to short-term tools like treasury bills and deposit certificates.
It is a guaranteed way to maintain the right capital level in an investor’s portfolio. It also prevents losses.
Business growth or capital preservation?
In deciding between business growth and capital preservation, companies and businesses that strategize on balanced investment say both. They have a 50/50 mindset and moderate risk tolerance.
They are far from aggressive investors focused on growth strategies because they sit in between the risk-reward measure.
Advantages of Balanced Investment Strategies
There many upsides and benefits a balanced investment strategy can bring to an investor. The best one is having advantages when the market curve rises.
When it goes downhill, they will also not lose everything since they did not pour everything. How? While there is high earning in high-risk securities, low-risk, on the other hand, naturally has low revenues.
So, the investors put an equal amount of investment in securities. There is always guaranteed capital retention.
When to use a balanced investment strategy?
Listed below are situations where an investor should consider a balanced investment portfolio:
- You are new in investments. You can avoid high-risks while achieving long-term achievements.
- You are a retired individual.
- You are part of the youth who wants to buy a house or go on a vacation in a few years.
- You want a long investment, and you avoid massive fluctuations in your account.
Rebalancing a portfolio
There is a possibility a portfolio will show in favor of one in the long run, even if you started with equal division in stocks and bonds. For example, your stocks may become 70%, and your bond is 30%, there is a rise in your stock performance. This stock rise also means a risk rise.
If you are determined to be on a medium risk level, you can reallocate your earnings. You can use your generated stock sales in purchasing bonds to balance your portfolio again.
It is synonymous with “buying low and selling high” when you sell assets with the profits turned into low-risk havens. In this way, you rebalanced your portfolio by selling stocks and buying bonds.