________ diversify outside the stock market by combining common stock with fixed-income securities, including government bonds, corporate bonds, convertible bonds, or preferred stock.
Click on the arrows to vote for the correct answer
A. B. C. D.A
Balanced funds diversify outside the stock market by combining common stock with fixed-income securities.
The correct answer is A. Balanced funds.
Balanced funds are investment funds that aim to achieve a balance between generating income and providing capital appreciation. These funds typically invest in a mix of different asset classes, including both common stocks and fixed-income securities. The goal of including fixed-income securities in the portfolio is to diversify the investment risk and provide stability to the overall fund performance.
Fixed-income securities refer to debt instruments issued by governments, corporations, or other entities to raise capital. These securities include government bonds, corporate bonds, convertible bonds, and preferred stock.
Government bonds are issued by national governments to finance their spending activities. They are considered relatively safe investments as they are backed by the government's ability to tax and print currency. Corporate bonds, on the other hand, are issued by corporations to raise funds for various purposes. They offer higher yields than government bonds but also carry higher credit risk.
Convertible bonds are a type of corporate bond that can be converted into a specified number of common shares of the issuing company. They provide investors with the potential for capital appreciation if the company's stock price rises.
Preferred stock represents ownership in a company but typically does not carry voting rights. It offers a fixed dividend payment and has priority over common stock in terms of receiving dividends and assets in the event of liquidation.
By combining common stocks with fixed-income securities like government bonds, corporate bonds, convertible bonds, or preferred stock, balanced funds aim to achieve a diversified investment portfolio. This diversification helps reduce the overall risk of the fund since different asset classes tend to behave differently in various market conditions. It allows investors to participate in potential stock market gains while having a portion of their investments allocated to more stable fixed-income securities.