Balanced Funds

Balanced Funds or hybrid funds are mutual funds that seek to provide a balance between income and capital growth. To do this they diversify between common stock, preferred stock, bonds, and short term bonds.

The idea behind a hybrid fund is that you will not get hit as hard during a bears market as you would if you had owned a purely stock portfolio. It also allows you to make a higher return during a bulls market then a pure bond portfolio, because on average stocks go up faster than bonds.

The flip side to balanced funds is that they will typically increase at a slower rate during a bulls market than a fund that buys only stocks.

These funds are developed for someone who wants to invest in the long term but cannot handle the extreme volatility of the stock market.