|
|
401(k) Fact |
|
About 53% of eligible employees participate in 401(k) plans but only 29% of workers aged 20-24. |
|
Balanced funds are the most truly diversified mutual funds because they invest in stocks, preferred stocks, and bonds in order to provide both potential growth and current income. By holding both asset classes, balanced funds tend to be less volatile than either pure stock or pure bond funds.
The major drawback of a balanced fund may be that it tends to under-perform pure stock funds in a bull market because only a portion of the fund’s assets is invested in stock. The average stock allocation, which is typically about 60% of the total portfolio, is spelled out in the fund’s prospectus, along with any limits the fund manager must follow.
For example, a manager may have the right to shift investments in changing economic environments but be required to keep a minimum of 25% in stocks or bonds at any given time.
Changes in the current interest rate may also affect a balanced fund’s performance, especially if the fund is invested in long-term bonds in a period when interest rates are rising. That will tend to reduce the fund’s total return.
|
