Balanced Investment Strategy

Written By
Paul Tracy
Updated September 16, 2020

What is a Balanced Investment Strategy?

A balanced investment strategy is a method of portfolio allocation.

How Does a Balanced Investment Strategy Work?

Let's assume that John Doe has $500,000 in his portfolio. He does not want to take on too much risk but is worried about not taking enough risk and then earning low returns. John wants something in the middle, often known as a balanced investment strategy.

In a balanced investment strategy, a portfolio is often split between equities and fixed-income securities. The split is important because these asset classes typically move in the opposite direction from each other, which mitigates big swings in the market. It also generates income (from coupon payments on the fixed-income securities and possibly dividends) as well as the opportunity for growth (from the capital gains in the equities).

Why Does a Balanced Investment Strategy Matter?

The balanced investment strategy balances risk and return; it also provides diversification. However, it is riskier than a capital-preservation strategy and less risky than a growth strategy.