Balanced Portfolio

When grouped together, one’s investments are called a “portfolio”. A balanced portfolio is one that holds a variety of different kinds of investments, for example: some stocks, bonds, real estate and gold (perhaps). The idea is that when one of the investments goes down in value, another one will go up.

The best example of this is how when the price stocks go down, the price of government bonds tend to go up. At this point, investors can sell some of the bonds that have made money and re-invest the proceeds in the stocks that have sold off (in order to “re-balance”). When the opposite happens, investors can sell stocks and buy more bonds. The hope is that investors maintain a portfolio balance that is right for the level of risk they’re willing to take (e.g. more stocks if they want to take more risk) and that they can, over time, benefit from market volatility by selling things at relatively high prices and buying them at relatively low prices.