Balanced Fund
A balanced fund holds a mix of asset classes — usually stocks and bonds, often around 60/40 — in one portfolio. It aims for moderate growth with less volatility than an all-stock fund, and it rebalances automatically.
Many investors want growth but can't stomach full stock-market swings. Balanced funds combine stocks for growth and bonds for stability in a single product, rebalancing as markets move. The classic 60/40 split has been a core portfolio for decades. This entry explains how balanced funds work, their trade-offs and how they compare with alternatives.
- Category
- Trading Basics
- Reading time
- 3 min
- Also called
- Balanced funds, Hybrid fund, 60/40 fund
- Updated
Balanced funds in plain words
A balanced fund, also called a hybrid fund, diversifies across two or more asset classes.1
It usually combines stocks and bonds in one diversified portfolio.1
Diversification can't guarantee you won't lose money, but it improves the chance that losses are smaller.2
How a balanced fund works, step by step
Set the mix
E.g. 60% stocks, 40% bonds. See Diversification.
Invest in each part
Stocks for growth, bonds for stability. See Bond.
Markets move
The mix drifts.
Rebalance
Sell what rose, buy what fell. See Rebalancing.
Pay one fee
Covering the whole mix. See Expense Ratio.
Hold long term
Suits steady investors.
Worked examples
Example 1 — Smoother returns
−10.4% vs −20%In a year stocks fall 20% and bonds rise 4%; the fund is 60/40.
| Stock part | 60% × −20% = −12% |
| Bond part | 40% × 4% = +1.6% |
| Fund | −10.4% |
Mixing asset classes softens losses compared with stocks alone.2
Example 2 — Rebalancing
Back to 60/40After a stock rally, a $100,000 fund is 70% stocks / 30% bonds.
| Target | 60/40 |
| Trade | Sell $10,000 stocks, buy bonds |
Balanced funds keep their mix by rebalancing, locking in some gains. See Rebalancing.
Example 3 — Both fall
−16%Stocks fall 18% and bonds fall 13% as rates jump.
| Fund | 60% × −18% + 40% × −13% = −16% |
When stocks and bonds fall together, balance offers less protection. See Interest Rate.
Balanced fund vs target-date fund
| Aspect | Balanced fund | Target-date fund |
|---|---|---|
| Mix | Fixed (e.g. 60/40) | Shifts toward bonds over time |
| Goal | Steady moderate growth | Retirement by a set year |
| Rebalancing | To the same mix | To a gliding mix |
| See also | Fund of funds | Fund of Funds |
Who uses balanced funds
Moderate-risk investors
Growth with less volatility. See Risk Tolerance.
One-fund portfolios
Simple, hands-off investing.
Retirees
Income plus some growth.
Behavioural discipline
Automatic rebalancing. See Behavioral Finance.
Advantages and disadvantages
Advantages
- Diversification in one product.
- Automatic rebalancing.
- Lower volatility than all-stock funds.
Disadvantages
- Lower long-run growth than stocks alone.
- Stocks and bonds can fall together.
- Fixed mix may not suit everyone.
Going deeper
Read as far as you need. Each level builds on the one before it.
Two or more asset classes
Beginner
Balanced funds diversify across at least two asset classes, most often stocks and bonds.1
Why diversification helps
Intermediate
Diversification aims to keep losses smaller if markets fall, though it can't eliminate them.2
Correlation risk
Advanced
The 60/40 mix works best when bonds rise as stocks fall; in inflationary periods both can fall together. See Inflation.
Common mistakes
Assuming no losses
Balanced funds still fall in bad years.
Ignoring fees
Compare with DIY index portfolios.
Holding several balanced funds
Often redundant.
Wrong mix for your age
Match the mix to your horizon. See Time Horizon.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Balanced funds mix stocks and bonds in one portfolio.
- 60/40 is the classic split.
- They rebalance automatically.
- They reduce, but don't remove, losses.
- Stocks and bonds can fall together.
Frequently asked questions
Is a 60/40 portfolio still good?
Can I build my own balanced fund?
Are balanced funds good for beginners?
Further learning
- Diversification
Why mixing assets helps.
- Rebalancing
Keeping the mix.
- Fund of Funds
Another all-in-one structure.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Balanced Fund (opens in a new tab) Checked .
- Investor.gov (SEC). Diversify Your Investments (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.