A blend / blended fund is an ETF or mutual fund investment that gives investors a chance to invest in value stocks and growth stocks. It’s one of the best investment strategies that allow you to diversify your portfolio, rather than investing in one of the strategies.
Growth vs. Value Stocks
Growth stocks are stocks of companies with sustainable positive cashflows and are expected to grow their earnings and revenues faster than the average companies in their industry. These have higher risks and performance and, therefore, are considered as aggressive investments. Growth funds have low dividends or none since the companies are mostly reinvesting their retained earnings. Investors usually a return through the price appreciation of the stocks.
Value stocks are equities of companies that investors believe are underpriced in relation to other stocks in the industry or the overall market. The returns for investing in value stocks can be in dividends and price appreciation. If you are looking for long term investments, value stocks can be a great avenue where you can reinvest our dividends and keep growing your portfolio. However, it’s important to research why the company’s stocks are undervalued to avoid investing in a company with other issues like mismanagement as a reason for the underpricing.
Blend funds explained
Both growth and value stocks have their advantages and disadvantages. Growth funds only earn you a return through the increase in the underlying asset prices and little to no dividends from companies with growth potential. Value stocks offer both from undervalued stocks.
How do you determine if blend funds are ideal for you? If you are any of the below investors, blend funds can be a good investment choice:
- You are looking to diversify your portfolio – blend funds offer the best of both investing strategies
- You are a long term investor – you have a long term investment horizon before you can start withdrawing your investments. The main focus of investing is to grow your wealth and not preserving capital.
- You are an aggressive investor – as a long term investor interested in blend funds, you need to have high-risk tolerance due to market volatility.
- You are beginning your investment journey – blend funds allow beginners to invest in multiple stocks under one investment rather than spending time researching and investing in individual stocks.
Balanced Funds vs. Blend Funds
Both balanced funds and blend funds offer diversification and involve a mix of asset investment. But they are different and can be confusing to some investors.
Balanced funds are also a mutual fund with a mix of equity and debt investments, like equities and bonds under one investment. The main objective of a balanced fund usually lies between earning income and growing wealth. Blend funds, on the other, will only concentrate on equities.
In conclusion, blend funds can be a great diversification choice for a beginner, aggressive, or long term investor who only wants to diversify through stocks. It will give you an opportunity to invest in both growth and value stocks rather than investing in individual investment strategies.