A good strategy to simplify.
A balanced fund is a mutual or exchange-traded fund that includes various types of financial assets, typically stocks and bonds. For investors seeking to simplify their investments, choosing balanced funds is a handy way to go. "Balanced fund" implies a 60% stock and 40% bond portfolio where the stocks are all large U.S. companies and U.S.-based bonds. "The good news is that U.S. large-caps and U.S. bonds have performed very well over the last decade. The bad news is that these areas will not outperform forever," says Mark Wilson, president at MILE Wealth Management. Balanced funds offer growth and income, and are suitable for investors who want to leave management to a pro. The best charge reasonable fees and offer sound management. Here are seven of the best to consider.
The Bruce Fund (ticker: BRUFX)
The Bruce Fund owns a spot at the top of the best balanced mutual funds list for several reasons. "This fund has been managed by the same two members of the Bruce family since 1983 and has outperformed most passive U.S. index funds. The expense ratio is 0.68%," says Steven Jon Kaplan, CEO of True Contrarian Investments. The fund is considered a large-cap value and allocates 50% to 70% to U.S. equities and the remainder to bonds, mostly zero-coupon medium- and long-term U.S. Treasurys. The managers seem to invest in a way that will offset stock declines with advancing Treasurys, Kaplan says. Since 2010, a $10,000 investment has grown to $28,000 versus the category average growth of $20,800. The current 2.03% yield adds to the fund's appeal.
Vanguard Life Strategy Conservative Growth Fund (VSCGX)
Vanguard offers four life strategy balanced mutual funds for distinct investors. Wilson favors the funds due to their inclusion of international investments and the opportunity to select a fund based on your risk level. The conservative growth balanced mutual fund is designed for investors who are more concerned with current income than long-term growth. The fund allocates 60% of its assets to bonds, including international bonds. The 40% allocated to stocks owns both domestic and international stocks. The fund currently yields 2.41% and levies a tiny 0.12% management fee. Since 2009, $10,000 invested in this conservative fund was worth nearly $19,000 by the end of last year.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Another vote for the Vanguard family comes from Scott Krase, president of CrossPoint Wealth. This fund is constructed to closely track broad U.S. stock and bond market indexes, Krase says. The 2.11% yield beats the average savings account, although even a balanced fund will be more volatile. The fund is currently invested 60% in stocks, 39% in bonds, with 1% in cash. The stock allocation can vary from 50% to 70%. For investors seeking a one-stop investment for a rock bottom 0.07% fee, this fund is on the mark. Just be certain to allocate money that you won't need for more than five to seven years to balanced funds with more than 50% stock allocations as fund values go up and down.
Vanguard STAR Fund (VGSTX)
For investors interested in beating the market, not just matching market returns, this actively managed fund is an option. Another Krase pick, this fund leans toward a 60% stock, 40% bond allocation and includes shares of 10 Vanguard Funds with unique objectives. This fund-of-funds includes Windsor II, GNMA Fund, U.S. Growth, International Growth and PRIMECAP. The stock portion represents a large-cap blend while bond holdings are medium-term and medium quality of investment-grade corporate bonds. The fund has a 0.31% expense ratio, 62% lower than the average expense ratio of comparable funds. Since December 2009, a $10,000 investment would have grown to $23,590. The $1,000 minimum investment amount makes VGSTX a strong pick for beginning investors.
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 after. 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. FFFGX is part of the Fidelity Freedom family with several balanced target-date funds. Currently, the fund's aggressive-leaning asset allocation is 54% in U.S. equities, 39% in international equities, 6% in bonds and the remainder in short-term debt. A $10,000 investment in the fund 10 years ago was worth roughly $23,000 at the end of 2019.
USAA Growth and Tax Strategy Fund (USBLX)
Here's a balanced mutual fund for the high-tax-bracket investor seeking capital preservation and income overgrowth. This conservative fund uses preset target ranges with 50% to 70% invested in tax-exempt bonds and money market instruments and the remainder in blue-chip stocks. The fund is managed to keep federal income tax to a minimum. The fund strives for yield and might sacrifice quality to achieve this goal. This highly ranked fund was founded in 1989 and yields 1.95%. A $10,000 investment in the fund in 2009 would be worth $23,368 at the end of 2019. This tax-smart balanced mutual fund has ranked in the top quartile of its class since inception.
Dodge & Cox Balanced (DODBX)
This best balanced mutual fund offers an array of benefits: veteran management, value-oriented stock and bond selection, solid track record and a low 0.53% management fee. The management team uncovers undervalued stocks with a competitive advantage for the equity portion, while bond selection focuses on corporate bonds and agency mortgage-backed securities. The fund's current asset mix includes 58% U.S. stocks, 7.5% international stocks, 33% fixed income, with the rest in cash. The juicy 2.26% yield and low 24% holdings turnover ratio add to the allure. The 10-year average return of 10.25% beat the category by more than 2%. The fund was founded in 1931, so investors can be confident that it will stick around.
Best balanced funds to pick right now:
-- The Bruce Fund (BRUFX)
-- Vanguard Life Strategy Conservative Growth Fund (VSCGX)
-- Vanguard Balanced Index Fund Admiral Shares (VBIAX)
-- Vanguard STAR Fund (VGSTX)
-- Fidelity Freedom 2045 Fund (FFFGX)
-- USAA Growth and Tax Strategy Fund (USBLX)
-- Dodge & Cox Balanced (DODBX)
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