What is a Balanced Investment Strategy?
A balanced investment strategy is a technique used in portfolio allocation by combining the investments in a portfolio with the aim of balancing risk and return. Its purpose is to strike a balance between capital preservation and growth.
Understanding Balanced Investment Strategy
In the middle of the risk-reward spectrum sits the balanced investment strategy with capital preservation and current income strategies seated on one end of the spectrum made up of money market instruments, high-grade bonds, and certificates of deposits (CDs); and growth strategies on the other end which are aimed at a higher-yielding stocks or securities. Hence, the balanced investment strategy is a strategy usually used by investors with average risk tolerance, and it usually consists of a 50/50 balance between stocks and bonds. Its capital preservation and growth strategies make it possible for both moderate and aggressive investors to both make use of this strategy.
When it comes to portfolio allocation there are different approaches to take. It all depends on the individual preferences and risk tolerance of the investors. The capital preservation strategy is engaged by investors who seek to only preserve their current capital without necessarily considering capital growth. The growth strategy is opted for by investors with high-risk tolerance who seek to grow their current income. A balanced investment strategy makes it possible for both kinds of investors to meet on a neutral ground. This would happen by mixing conservative and aggressive investing strategies and benefitting from both.