Mixed funds are a blend of two types of funds: growth funds and value funds, which allow investors to achieve long-term growth while also realizing quick gains at the same time.
Definition of Mixed Funds and an Example
Mixed funds are typically mutual funds, where money is pooled from investors and managed by a fund manager. Mutual funds are a basket of investments or securities that can include stocks, bonds, and money market accounts. However, mixed funds tend to invest only in stocks, including a mix of growth stocks and value stocks.
Growth Stocks
Growth stocks mainly consist of new companies with high potential for growth and development. Investors who invest in growth stocks often seek to outperform the general market and are usually willing to take on more risk – which means price volatility – to achieve those gains. Examples of growth stocks include Amazon (AMZN) and Tesla (TSLA).
Value Stocks
Value stocks tend to be more stable companies with sustainable earnings growth and provide regular dividends. They are relatively lower risk (and more fairly priced) than growth stocks. Value stocks typically attract buyers who are looking for steady cash flow and modest long-term growth. Examples include companies like Coca-Cola (K) and Verizon (VZ).
Example of a Mixed Fund
The T. Rowe Price Growth and Income Fund (PRDGX) is a mixed fund aiming to achieve income from dividends and long-term capital growth through owning stocks. The fund management believes that companies with an excellent track record of dividend payments often achieve long-term growth. Some holdings include companies like Microsoft, Visa, Apple, and UnitedHealth Group.
How do Mixed Funds Work?
A mixed fund is designed to combine growth and value investment styles into a single investment vehicle. The purpose of a mixed fund is to diversify the equity portion of an investor’s portfolio. There are two basic ways to make money from stocks: through the appreciation of the company’s share price and through dividends, both of which are important for achieving long-term gains and building wealth. Mixed funds seek to facilitate investors benefiting from both sides.
Who Benefits from Mixed Funds?
Mixed funds have broad appeal, but they are not suitable for everyone. Here are the types of investors who may find what they are looking for in mixed funds:
- Investors seeking to diversify their investments
- Beginner investors
- Long-term investors
Mixed funds are useful ways to cast a wide net in the market, so they are ideal for investors looking for diversification. They can also be a good option for those just starting in the market, as you do not have to spend time and effort picking individual stocks. Instead of having to research every stock option, you can invest in a single fund and be done.
Long-term investors love mixed funds because they are composed entirely of stocks, and the stock market tends to grow if given enough time. Most long-term investors have about 10 years or more before they need to withdraw money from their accounts, so the focus is on growth rather than capital preservation. However, this complete allocation to stocks comes with risk, so individuals following this approach must have a high tolerance for market risk and the ability to endure short-term volatility.
Who Should Avoid Mixed Funds?
There are two types of investors who should not purchase mixed funds: conservative individuals and short-term investors. Since mixed funds allocate 100% of their assets to stocks, those who are more cautious about their money may not want to take on this level of risk in the market. For instance, they may want to keep less than 50% of their portfolio exposed to stocks and have most allocated to lower-risk investments such as bonds. Similarly, short-term investors who need to start withdrawing money from their accounts within three years should avoid using mixed funds due to their heavy reliance on stocks.
Funds
Blend vs. Balanced Funds
While blend funds and balanced funds focus on diversification, the main difference between them is the type of securities they use. Balanced funds, also known as “mixed funds,” consist of investments from various asset classes, such as stocks, bonds, and gold. In contrast, blend funds focus exclusively on holding stocks. Balanced funds can contain growth stocks and value stocks, along with a full range of many other types of investments.
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Sources:
- U.S. Securities and Exchange Commission. “Mutual Funds.”
- U.S. Securities and Exchange Commission. “Stocks.”
- T. Rowe Price. “Growth and Income Fund (PRDGX).”
Source: https://www.thebalancemoney.com/what-are-blend-funds-2466811
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