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Balanced Investment Strategy

Moneyzine Editor
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Moneyzine Editor
1 mins
January 8th, 2024
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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

  • The term tactical asset allocation refers to an investment approach that actively adjusts the allocation of assets in a portfolio. Tactical asset allocation involves the continual rebalancing of the mix of investments in a portfolio to take advantage of pricing anomalies.
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  • The term strategic asset allocation refers to an investment approach that rebalances the allocation of assets in a portfolio to achieve a long-term target. Strategic asset allocation typically involves moving the funds from over-performing asset classes to those that are underperforming.
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  • The term vanilla strategy refers to an approach to investment decisions that is plain and simple. Vanilla strategies might also be described as conservative, since they are a back to basics approach to investing.
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  • Momentum Strategy (Momentum Investing)
    The term momentum strategy refers to an investment approach that involves purchasing securities experiencing an upward price trend and selling those that are declining. A momentum strategy relies more on investor sentiment than company fundamentals.
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  • Halloween Strategy (Sell in May and Go Away)
    The term Halloween strategy refers to the selling of stock before May and not investing in equities again until the end of October. The Halloween strategy is based on a theory that the months of November through April provide investors with stronger capital gains than the remainder of the year.
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