PERFORMANCE OF BALANCED FUNDS
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There are several ways to measure the performance of a balanced
mutual fund. The first things to look at are a fund's total return and its
volatility (tendency to fluctuate in value) as compared to other balanced funds.
A fund's total return is its income combined with the increase or decrease in
its net asset value (NAV). Typically, a balanced fund's return will be more
stable over a five- or ten-year period than will that of a pure growth fund. It
should also show less volatility than a pure stock fund and higher returns than
most bond funds.
A fund's current asset holdings help explain the past performance
of a balanced fund. You should ask questions such as the following: Did the fund
invest exclusively in Treasury bonds, or were corporate bonds included? How much
cash did the fund have on hand?
Two other factors affecting performance are expenses and
management fees, both of which can be a drag on overall fund performance if they
Also consider a
fund's turnover, which reveals how often it sells existing assets to
purchase other assets.
The higher the turnover, the more transaction costs might lower
your fund's total return. Excessive turnover can also lead to high capital gains
taxes, which you will have to pay. You can buy balanced funds from most fund
companies and brokerage firms.
Some funds have
sales charges (load funds) and some do not (no-load funds).
Before we complete the tutorial on balanced funds, let's
put together all you have learned.