Balanced investment technique is possibly probably the most adopted and effective investment technique for portfolio management. Its primary aim would be to have a balance between investment risk and return. A well-balanced investment strategy combines the merit of aggressive and defensive investing strategies.
Aggressive investment strategy involves purchasing high return high-risk investments using the sole reason for maximizing return from investments. It calls for allocating major part of portfolio capital to purchase equities, equity based funds and highly volatile markets. Investors following aggressive investment strategy frequently search for comparatively short-term profiting and would like to invest more in growth stocks, and small caps and mid cap stocks. Benefits of aggressive investing include quick profit, high return over investment with no necessity of large portfolio capital. It may work very well for skilled investors and investors who’re very strict within their management of your capital. Disadvantages include high-risk, high volatility as a whole portfolio value with no surety of profit. It less supports novice investors and investor searching for monthly earnings or living costs.
Defensive investment technique is just complete opposite of aggressive investment it’s purpose would be to preserve the main city and be sure some return from investments. It calls for purchasing low profit safe investments like bonds, money market funds, treasury notes, and equities with minimum cost volatility and good dividends. Defensive investors search for lengthy-term profits and/or monthly earnings. Benefits of defensive investment strategy include reduced risk, foreseeable earnings, better investment planning and diversification of portfolio. This tactic mainly suits beginners. Disadvantages include low return from investments and dependence on high capital investments.
In balanced investment strategy, the investor attempts to have a balance between his aggressive and defensive behaviors. It calls for balancing of both return and risk by diversifying investments both in high return high-risk and occasional return safe investments. Balanced investors frequently consume a portfolio capital allocation rule telling just how much to purchase equities and bonds and just how much to purchase treasury notes, gold and silver and money. Usually one part of portfolio is positively managed along with other portion remains to develop instantly. Balanced investment strategy could be slightly aggressive or slightly defensive regarding investments made.
The finest benefit of balanced investment technique is the diversification of portfolio and hedging against high total portfolio value volatility. It’s good for investors searching for medium-term (three to five years) profits. Other advantages include versatility in portfolio management, better results with better capital investments, (almost) foreseeable earnings and manageable portfolio risk. Balanced investment strategy support both beginners and experienced investors and could be a choice for monthly earnings for living.