WHAT KINDS OF INVESTMENTS ARE INCLUDED IN BALANCED
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Investments made in a balanced fund are broken down into asset
class is simply an investment type.
The three main asset classes in balance funds are the
The percentage of money the fund invests in each asset class is
known as its asset allocation.
Balanced funds generally establish guidelines as to how much of
their value can be invested in each asset. These guidelines, which are printed in
the prospectuses, let investors know how their money will be invested within the
funds. For example, many balanced funds will limit their stock investments to no
more than 60 percent of their total value.
Some balanced funds limit themselves to the two or three main
asset classes, while others invest in a wider array of assets. Some funds focus
only on assets from the United States, while others hold international assets as
well. By combining assets with different characteristics in one portfolio, an
investor can potentially achieve higher returns with lower risk over the long
term than with a portfolio limited to one asset class.
When deciding on a balanced fund, examine the fund's guidelines
for asset allocation. Matching a fund's allocation to the level of risk you are
willing to accept is an important part of choosing a balanced fund. For example,
a fund that allocates a greater portion of its assets to stock will generally
have a higher level of risk.
There are balanced funds that do not set limits on how
they invest in each asset class. Let's see what they are in the next tutorial