The classic problem for investors is always the same: they want high returns, but at the same time they fear risk.

This is where the concept of a balanced investment strategy comes in, offering a way to maintain a balance between potential returns and risk levels.

So, to start with, we will review the legendary 60/40 strategy, which has long been a mainstay for global investors in managing their portfolios.

What is a Balanced Investment Strategy?

A balanced investment strategy is basically a way of dividing a portfolio into various types of assets to maintain a balance between risk and return.

In practice, this strategy combines high-risk instruments such as stocks or even cryptocurrencies with low-risk instruments such as bonds, deposits, or money market instruments.

That way, the returns obtained tend to be more stable than strategies that only focus on one type of asset.

In comparison, conservative strategies usually emphasize capital preservation by choosing safe instruments, such as government bonds, deposits, or blue-chip stocks (stocks of large, established companies) that pay dividends.

This strategy is indeed safer, but the returns offered are relatively low. Conversely, aggressive strategies lean more towards growth assets, such as small-cap stocks or high-yield corporate bonds.

This strategy has the potential to generate large profits, but the risks are also much higher. A balanced investment strategy falls somewhere in the middle of this spectrum.

By combining elements of conservative and aggressive strategies, investors can seize growth opportunities while preserving their capital.

For example, a balanced portfolio combines investment instruments that can include dividend-paying stocks and small-cap stocks with growth potential.

It can also include government bonds and loans from large companies that are considered safe.

This strategy is suitable for investors with a moderate risk profile who want to achieve higher returns than conservative instruments without having to bear the extreme risks associated with aggressive strategies.

This strategy offers a middle ground between two extremes: conservative, which focuses on capital preservation with low returns, and aggressive, which pursues high growth but is fraught with volatility.

A balanced portfolio, for example, could consist of a combination of blue-chip dividend stocks, small-cap stocks, high-rated government bonds, and investment-grade corporate bonds.

From this concept, various modern variations have emerged that are still rooted in this classic concept, such as the 70/30 model or the risk parity approach.

However, the foundation remains the same, which is to create a portfolio that can provide reasonable returns while maintaining stability in the long term.

It is important to note that the concept of a balanced investment strategy is not new in the world of capital markets.

This strategy has been around since the 1920s, when investors and large investment managers sought ways to balance capital growth needs with value protection.

At that time, many portfolios were structured with a division between low-risk assets such as bonds and money market instruments, and higher-risk assets such as stocks, so that investors were not entirely dependent on one side of the spectrum.

Over time, the balanced investment strategy has become one of the basic approaches widely used by professionals tasked with managing investor funds or global fund managers.

The 60/40 Strategy: The Classic Investor Formula

One of the most popular forms of balanced investment strategy is the 60/40 formula, which divides the portfolio with a 60% allocation to stocks and 40% to bonds.

This composition is designed so that investors can still get capital growth through the stock portion, while also gaining stability from bond instruments, which tend to be safer.

The 60/40 strategy has become popular because it has stood the test of time. Over the past few decades, many large fund managers and individual investors have used it as a basic reference in constructing their portfolios.

Stocks offer strong growth opportunities, while bonds act as a counterbalance when the stock market experiences volatility.

Historically, the performance of a 60/40 portfolio has shown impressive resilience compared to a full stock portfolio.

For example, when the market experiences a sharp decline, investors with a 60/40 portfolio usually do not experience losses as deep as those who put all their capital in stocks.

Although its long-term returns may be lower than aggressive strategies, its stability and consistency make this formula one of the classic strategies that continues to be used today.

Advantages of a Balanced Investment Strategy

One of the main attractions of a balanced investment strategy is its automatic diversification.

By combining high-risk instruments like stocks with low-risk instruments like bonds, investors can reduce risk without having to construct an overly complex portfolio.

This diversification helps the portfolio remain more stable when one asset class is under pressure. Furthermore, a balanced strategy still provides room for long-term growth.

The stock portion within the strategy opens up opportunities for capital appreciation, or the increase in the value of an asset or investment over time.

Meanwhile, the presence of bonds or fixed-income instruments protects the portfolio from being easily eroded by market volatility.

This combination allows investors to enjoy the benefits of growth while protecting their capital.

Another advantage is its simplicity. Compared to complex investment strategies or those based on difficult-to-understand quantitative models, a balanced investment strategy offers a framework that is easy to implement, even for novice investors.

Simply by maintaining the right balance of assets between conservative and aggressive instruments, investors can build a robust portfolio without the hassle of performing complex analysis every time.

Disadvantages & Challenges

While a balanced investment strategy has many advantages, it also comes with several limitations. One is the potential returns, which are not as high as aggressive strategies during a bull market.

When stock prices skyrocket, investors who invest entirely in stocks typically earn greater returns than those whose portfolios are partially allocated to bonds.

Although considered safe, this strategy still carries risks when the market moves erratically. One example occurred in 2022, when stocks and bonds both experienced sharp declines.

This situation put pressure on a balanced portfolio, which is usually more stable, because both main instruments fell simultaneously.

Another challenge lies in the need to regularly rebalance, or return the composition of the investment portfolio to its initial allocation.

Over time, portfolio composition can change due to differences in performance between assets.

Without readjustment, an initially balanced allocation can shift too heavily to one side, making the risk profile no longer align with the investor’s initial objectives.

This rebalancing process can also incur additional transaction costs, especially when conducted on platforms with high fees.

Balanced Investment in the Indonesian Market

In Indonesia, the concept of a balanced investment strategy can be implemented by combining stocks on the Indonesia Stock Exchange (IDX) and government bonds, such as ORI or SBR.

This strategy seeks to balance the potential returns from equities with the stability of fixed income from bonds, thus maintaining risk and return within a single portfolio.

Previously, to implement this strategy, investors had to manually construct a portfolio by purchasing stocks and bonds individually, or rely on the assistance of a financial advisor or services from a financial institution.

Now, the situation is much easier. The presence of digital investment platforms and balanced mutual funds has made balanced strategies accessible to retail investors.

Balanced mutual funds, for example, automatically allocate funds to stocks and bonds in a specific composition, resembling the 60/40 balanced fund model popular in global markets.

Through local financial products such as mutual funds and retail government bonds, investors can enjoy the convenience of building a balanced portfolio without the hassle of manually managing allocations.

Balanced Investment Strategy in Crypto

While in traditional markets, a balanced investment strategy is implemented through a combination of stocks and bonds, this approach can also be adapted in the crypto world.

For example, a young investor just entering crypto might choose to invest 50% of their portfolio in Bitcoin, the primary asset with the most established reputation, and 30% in Ethereum, which has the potential for ecosystem growth.

Meanwhile, the remaining 20% ??is placed in stablecoins to maintain liquidity and cushion extreme price fluctuations.

This strategy helps balance risk and potential returns. With stablecoins, the portfolio is not fully exposed to the volatility of crypto assets.

However, it’s important to understand that, despite appearing more stable, crypto remains much more volatile than conventional stocks or bonds.

To make this approach more effective, investors can combine it with the Dollar Cost Averaging (DCA) method.

With DCA, asset purchases are made regularly in fixed amounts, reducing the risk of buying at peak prices and increasing portfolio stability over time.

How to Implement a Balanced Investment Strategy

Regarding how to implement a balanced investment strategy, the first step is to determine your risk profile.

Moderate investors are generally suited to a balanced strategy because it’s not too extreme in pursuing returns, but also not too conservative in preserving capital.

After that, investors can choose their primary assets based on their preferences, whether they lean toward stocks, bonds, or even digital assets like crypto.

The next step is determining the portfolio distribution ratio. Many global investors use the classic 60/40 model, namely 60% stocks and 40% bonds, although other variations can be tailored to individual needs.

To ensure the composition remains aligned with the initial plan, rebalancing needs to be done regularly, for example once or twice a year. This way, the portfolio maintains a balance between risk and potential returns.

Conclusion

So, that was an interesting discussion about the Balanced Investment Strategy and the 60/40 Investor Strategy, which you can read in full at the INDODAX Academy.

In conclusion, a balanced investment strategy is an ideal choice for investors who don’t want to take too much risk (gambling), but also don’t want to see their assets stagnate.

The classic 60/40 model still proves relevant today, although it needs adjustments to suit modern market conditions, including the presence of digital assets like crypto.

If you’re looking for a way to stabilize your portfolio without missing out on growth opportunities, this strategy could be a wise move to consider.

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FAQ

1.What is a Balanced Investment Strategy?
A Balanced Investment Strategy is an investment strategy that divides a portfolio into several types of assets—for example, stocks, bonds, or crypto—with the aim of balancing risk and return. This strategy is suitable for investors with a moderate risk profile.

2.What does the 60/40 strategy mean in investing?
The 60/40 strategy is a popular form of the Balanced Investment Strategy, where 60% of the portfolio is allocated to higher-risk assets such as stocks, and 40% to stable assets such as bonds. This combination aims to maintain a balance between capital growth and stability.

3.Is the Balanced Investment Strategy suitable for beginners?
Yes, this strategy is suitable for beginners because it is simple and low-risk. Investors only need to determine the asset ratio and then rebalance periodically. With a balanced approach, beginners can learn to invest without the pressure of extreme volatility.

4.How to implement this strategy in Indonesia?
In Indonesia, the Balanced Investment Strategy can be implemented through balanced mutual funds, a combination of IDX stocks with government bonds (ORI/SBR), or money market instruments. Retail investors can also build their own portfolios by adjusting the ratio to suit their risk profile.

5.Can the Balanced Investment Strategy be used in crypto?
Yes. A balanced strategy in crypto typically involves a mix of major assets like Bitcoin and Ethereum, plus stablecoins for stability.
For example, 50% BTC, 30% ETH, and 20% USDT/USDC. With this combination, investors can reduce risk while still achieving growth potential.

Author: Boy