The best balanced mutual funds for simple investment diversification.
As markets reach new highs, an all-stock portfolio might be too risky for some. The alternative is to own diverse assets. Choosing one balanced mutual fund with stocks and bonds will likely temper any large swings in the portfolio’s value. So if the stock market declines, you’ll have fixed assets to prop up returns. The benefit of investing in a balanced fund is simplicity and diversification. Balanced funds normally rebalance back to a target stock/bond mix, saving investors time and the stress of portfolio management. As life becomes more and more complicated, a balanced mutual fund can streamline investment decisions. Most of these balanced funds have reasonable expense ratios, and some are sensitive to the tax consequences caused by excessive turnover. There is a mix of passive index fund choices along with several actively managed picks. Here are seven of the best balanced funds to invest in now.
Vanguard Wellesley Income Fund Investor Shares (ticker: VWINX)
From the renowned home of low-fee investing comes this 50-year-old income-oriented mutual fund. It’s not just for retirees; some younger investors prefer the comfort and security of a conservative asset allocation. Steven Jon Kaplan, investment counselor at True Contrarian Investments, likes VWINX for its low expense ratio of 0.23% and conservative asset mix. The fund is unique among balanced funds with about 60% in bonds and 37.5% in the stock market. “The fund intentionally avoids owning mega-cap U.S. technology shares, which are in a dangerously overpriced bubble, and instead concentrates on value,” says Kaplan. Kaplan and other financial pros believe that value investing is due for a comeback. Income investors will also appreciate the current 2.9% dividend yield. With 68 stocks and 1,196 bonds, this fund is appropriate for conservative, long-term investors.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
This typical balanced mutual fund takes the traditional route by investing about 59% in stocks, 38% in bonds and 3% in cash equivalent investments. The fund tracks two indexes representing the overall U.S. stock and U.S. taxable bond markets. Scott Krase, president of CrossPoint Wealth, says the fund should deliver returns that outpace inflation. The 1.9% yield is acceptable, albeit lower than in the past, due to the current low-interest-rate environment. With 3,281 stocks and 8,133 bonds, VBIAX easily represents the U.S. stock and bond markets — just add an international fund and an investor can rest assured that their portfolio is diversified. Krase also likes this fund for retirees seeking to simplify their investments. With a 0.07% expense ratio, most of the investor’s money goes directly into the financial markets.
Vanguard Wellington Fund Investor Shares (VWELX)
Founded in 1929, this is the oldest balanced mutual fund available. The fund is unique among balanced mutual funds in that it invests in stocks and bonds across economic sectors. The fund holds only 61 stocks and 1,073 bonds. Robert R. Johnson, finance professor at Heider College of Business at Creighton University, likes VWELX for its value orientation as the stocks within the portfolio lean toward value shares. He also says the markets are due for a rotation out of growth stocks and into value, making this a good balanced fund pick for the current investment environment. The expense ratio of 0.25% is quite low for a managed fund, while the 2.3% yield is not bad for a stock-heavy fund. VWELX is good for conservative investors with a long time horizon.
Fidelity Freedom 2045 Fund (FFFGX)
A best balanced fund list would be incomplete without a nod to the target-date fund. The target-date fund’s goal is to achieve capital growth until the target retirement date and capital preservation thereafter. So for a 40-year-old seeking to retire at age 65 in 2045, this fund starts aggressively and adjusts the asset allocation to become more conservative over time. This is the ultimate one-stop-shop investment. FFFGX is part of the Fidelity Freedom family with several balanced target-date funds. The fund is composed of approximately 52% domestic equities, 41% international equities, 6% bonds and 1% in other assets. The fund owns shares in roughly 30 Fidelity funds from diverse corners of the financial markets, which explains the 0.75% expense ratio.
Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
This fund belongs to a group of Vanguard strategy funds that each pinpoint a distinct allocation and risk level. Mark Wilson, president of MILE Wealth Management, likes this balanced mutual fund because of its global diversification. “I think the fund will outperform the average balanced fund over the next 10-plus years. Of course, Vanguard keeps the expenses low at 0.13% of assets under management, and the fund has been tax-efficient due to its indexed core,” Wilson says. Like the Fidelity Freedom series, Vanguard’s LifeStrategy funds are set up as a fund of funds, owning shares in other mutual funds. Yet, VSMGX owns only four Vanguard funds representing a 60% stock and 40% bond asset allocation. The stock investments cover the U.S. and international equity markets; the bonds span both U.S. and international bonds. Its 2.1% yield is impressive for a balanced fund.
American Funds American Balanced Fund (ABALX)
Passive index fund investing is great, but there’s room on a balanced funds list for actively managed funds as well. The fund’s asset allocation is unique with 47% in U.S. and 8% in international equities. Bonds make up 34% of holdings and cash nearly 10%. This fund deviates from other funds with a full range of fixed assets from treasuries to BBB/Baa-rated bonds. The stock holdings include large- and mid-cap firms, many of which are dividend-paying blue-chip offerings. The expense ratio is 0.59%, and the yield is a generous 1.8%. Despite a high turnover ratio of roughly 100%, the tenure of management and success of the fund makes this a sound investment for those looking for an actively managed fund with category-beating, long-term returns.
Dodge & Cox Balanced Fund (DODBX)
This actively managed, value-oriented balanced fund has wide latitude in its investment allocation — as it can invest between 25% and 75% in equities. The low turnover ratio of 35% makes it reasonably tax-efficient. Although the fund’s value orientation has hindered returns, the widespread belief that value investing is due for a comeback makes this fund worth investigating. The fund’s current asset allocation is equity-heavy, with 69% in common stocks and 2% in preferred stocks. The fixed assets are a modest 26% with the remainder in cash-type securities. The fund is concentrated in 69 stocks with value characteristics and 64 intermediate-term bonds. The current yield is 2.2%, offering an attractive income stream. The fund was founded in 1931, so investors can be confident that it will stick around.
Best balanced mutual funds to pick right now:
— Vanguard Wellesley Income Fund Investor Shares (VWINX)
— Vanguard Balanced Index Fund Admiral Shares (VBIAX)
— Vanguard Wellington Fund Investor Shares (VWELX)
— Fidelity Freedom 2045 Fund (FFFGX)
— Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
— American Funds American Balanced Fund (ABALX)
— Dodge & Cox Balanced Fund (DODBX)
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Update 09/01/20: This article was published on a previous date and has been updated with new information.