What is a Balanced Investment Strategy?

A balanced investment strategy seeks to balance the risk and return of a portfolio by investing an equal amount of money on high-risk and low-risk securities. The ideology behind this portfolio allocation strategy is that while the high-risk securities will fetch the investor the highest amount of returns, the low-risk securities will offer the minimum risks, thereby balancing the risk and return of the investment. Using a balanced investment strategy entails that a portfolio is equally divided into equities and fixed-income securities, that is, the portfolio comprises both income-producing securities and growth investments.

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How Does a Balanced Investment Strategy Work?

The balanced investment strategy offers many benefits to investors. Primarily, it allows them to take advantage of the upward movement of the market, without losing everything when there is a downturn. Investors achieve this by investing in high-risk and low - risk securities equally. The high-risk securities offer high yield while the low-risk securities offer low yield, thereby creating a balance in the risk and return an investor gets from a portfolio. While a balanced investment strategy is often referred to as an aggressive strategy, it guarantees capital retention for investors.

Balanced Investment Strategy VersusCapital Preservation, Current Income, and Riskier Growth-Oriented Strategies

There are other strategies that investors and portfolio managers use for an effective allocation of investment in a portfolio aside from the balanced investment strategy, these are;

• Capital Preservation: This strategy helps investors maintain a good capital level by guaranteeing return in a portfolio and also preventing losses.
• Current Income: This portfolio allocation strategy entails the selection of investments that offer returns that are above the average returns. It is focused on the income an investor can derive from a portfolio, which can be in the form of dividends or interests.

These strategies are not aggressive and risky in nature like growth-oriented strategies. For instance, the capital growth strategy that aims to increase the value of an investment over a period of time, this strategy seeks a high return in an aggressive manner, while preventing losses.