What is a common reason for an investor to choose a balanced fund?

Choosing a balanced fund is primarily driven by the objective of diversification of investments. A balanced fund typically invests in a mix of stocks and bonds, which helps to spread risk across different asset classes. This diversification is advantageous because it can reduce volatility; when one asset class is performing poorly, another may be performing well, thereby providing more stability to the investor’s portfolio.

Balanced funds cater to investors who are looking for a more conservative investment strategy that still offers the potential for growth through equities while also including bonds to provide income and reduce overall risk. This makes balanced funds particularly appealing to those who want to achieve a blend of safety and growth, aligning with their risk tolerance and investment goals.

The other choices do not align with the primary appeal of balanced funds. For instance, high risk for high returns focuses on aggressive growth strategies rather than a balanced approach. Allocating solely in equities neglects the defensive aspects that bonds can offer, and tax-free investment returns typically pertain to specific types of accounts or funds, rather than being a characteristic of balanced funds.