Advantages and disadvantages of investing in mixed funds

2 min. reading
Mixed funds / 15 July, 2021

Edgar Mondragón Tenorio Journalist

What is a mixed investment fund?

Mixed investment funds are funds that in their structure include fixed income instruments, such as government or corporate bonds, and equity instruments, mainly stocks or ETFs.

At the same time, the term mixed can refer to exposure to assets in different geographic regions, for example, in its fixed component it can include government bonds from different countries with different levels of economic development in the five continents.

These funds are highly recommended for those profiles looking for a component that gives less volatility to the investment portfolio and intends to maintain its investment in the long term.

But like all investment instruments, mixed investment funds have pros and cons that we must consider in order to contemplate the possibility of incorporating them into our portfolio or not.

Here are some of the advantages and disadvantages of commingled investment funds:

Advantages and disadvantages of investing in equities

Advantages and disadvantages of investing in equities

As soon as we start investing, we immediately come across the first two categories that we need to know and understand before making an investment decision, especially if the objective is to preserve and grow our assets.

Advantages of commingled mutual funds

  • They reduce volatility. The fixed income component helps us that, in times of uncertainty in the markets, where the volatility of the variable part increases, the possible losses are lower, increasing the total profitability of the fund.
  • Compared to fixed-income funds, mixed funds will always have a higher return.
  • Although they are regularly requested by investors seeking low risk exposure, these funds can be adapted to different investor profiles, from the most moderate to the riskiest.
  • The composition of these funds is neither rigid nor immutable, on the contrary, it can be modified as it is more convenient depending on the economic cycle and market fluctuations.
  • Managed by experts. These are instruments managed by experts who will define the fund’s investment strategies at the appropriate times.

Disadvantages of commingled investment funds

  • Lower profitability. While it is true that the fixed component decreases volatility, it is also true that, in times of a boom in the variable part, the fixed component can contribute to a decrease in the total return of the fund.
  • Disadvantages of diversification. Since the fund does not invest all of its resources in a single asset, for example, a share of a technology company, if this share has an extraordinary appreciation, it will benefit the fund, but not in the same proportion as the share on its own.
  • Not recommended in the short term. Both the volatility of the variable component and the possibility of a bad performance of the fixed component make these funds advisable in medium- and long-term horizons to improve their profitability.

These are the pros and cons of mixed investment funds. Undoubtedly, they are a good alternative to achieve our medium and long-term objectives, while considering their disadvantages.

 

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