Setting aside money for one’s retirement or any other large, long-term goal, is a tough thing to do. Making that decision to get started is a big step all on its own. But that decision is just the first step in the investment process. Next comes the decision as to which investment vehicle makes the most sense for an investor. For new investors, the best way to invest is through a balanced fund, whether it is a mutual fund or a properly diversified exchange traded fund. Despite some of the shortcoming to balanced investments there are several huge benefits, which we outline here:
1. Balanced funds offer an optimal asset mix for those with the right risk tolerance. Whether you have $1,000 to invest or $1,000,000, choosing a balanced fund can be easy if your primary objective is asset allocation. For investors who do not know a whole bunch about investing, leaving the asset mix problem to a professional investment manager, such as a portfolio manager in a mutual fund or exchange traded fund, is a prudent investment. This is also true of target-date funds, where the asset mix will evolve according to the investor’s “target date.” Taking a hands-off approach by leaving your money to the professionals is a wise decision.
2. Balanced funds employ teams of experts in various economic and market capacities. Unlike many investors who rely solely on their own knowledge or on the knowledge they obtain by visiting their favorite websites and reading various books, investment companies will look at all of the things that the average, individual investor will miss. Things as intangible as market sentiment and technical analysis to things as tangible as a company’s fundamentals and the yield curve are instrumental in making a wise investment decision. Given the dollars a lot of these fund companies manage, it makes sense for them to have a full team helping with key investment decision; it does not make so much sense for the average investor to hire a team.
3. Liquidity. Unlike a lot of other properly diversified investments, a balanced investment fund offers quick liquidity. In other words, rather selling offer all dozen or so of one’s individual holdings, a balanced fund will meet redemption requests in almost all circumstances. This is a big plus for investors who are not sure when they might actually need their money.
Overall, balanced investment funds offer a great solution for new investors who want to get their feet wet. Not only are they properly managed and offer the benefits outlined above, but they also allow many investors to enjoy all of the benefits of the various assets within the fund while being somewhat cushioned from the idiosyncrasies of other assets thanks to diversification.