What is a blend fund?
A blend fund is a fund comprising portfolios that bring together both growth and value stocks. Blend funds are diversified, meaning that their assets not only grow at different rates but also protect the investor from losing too much of her investor all at once. However, blend fund assets are typically only allocated in stocks.
Growth stocks are those that grow at a higher rate than similar stocks in the same market. Value stocks, on the other hand, are expected to appreciate greatly in the future, meaning that they’re undervalued now. A blend fund combines both in the same fund.
Blend funds are generally high-risk instruments. That’s because, while the fund’s assets are spread over several types of stocks, the fund’s assets are largely in the same asset class.
Blend funds are most valuable when the returns from their growth stocks buttress those anticipated from the value stocks. That means they take longer to prove valuable relative to other types of funds, especially when stocks in general are underperforming. Blends are thus a form of passive investment.
Not ready to invest in a blend fund? Deposit your money in a low-risk savings account instead.
Blend fund example
Some of the largest index funds are blend funds, such as many funds tied to the S&P 500 and virtually all Vanguard exchange-traded funds (ETFs). Alex wants to try investing, but doesn’t know much about most asset classes except stocks. Because blend funds are entirely composed of stocks, he goes for the Vanguard S&P 500 ETF, which also has an attractively low expense ratio. He invests $5,000 and now he just has to sit back and watch his investment slowly increase.