Balanced Investment Strategy

Definition

The term balanced strategy refers to a portfolio allocation approach that attempts to strike a balance between risk and return.  Balanced investment portfolios typically contain a mix of equities as well as fixed income securities.

Explanation

A balanced investment strategy is one that assembles a portfolio of equities and fixed income securities in an attempt to balance risk and reward.  Typically, this is achieved by evenly dividing the portfolio's funds between equities, such as common stocks, and fixed income securities, such as bonds.

This type of portfolio is considered balanced because the value of bonds and common stocks typically move in the opposite direction.  For example, when investors flee the stock market they place their funds in fixed income securities; thereby driving up the value of bonds.  In the same way, when investors are not satisfied with the performance of bonds, they will purchase equities; thereby driving up the value of common stocks.

A balanced investment strategy should not be confused with less risky strategies such as capital preservation.  While it does provide the benefits of diversification, and is less risky than aggressive growth strategies, the objective of this approach is not to eliminate risk but balance it with reward.

Related Terms

tactical asset allocation, strategic asset allocation, vanilla strategy, momentum strategy, Halloween strategy