Best Balanced Funds for Long-Term Investors
Top Balanced Funds to Buy for the Long Run
Balanced funds are mutual funds that invest in more than one asset type, such as stocks and bonds, for a stated objective, such as conservative, moderate or aggressive. There are dozens of different balanced funds to choose from, including a wide range of actively-managed and passively-managed types. The best balanced mutual funds are almost always the kind that investors can hold for years or even decades.
Top balanced funds will have the most important qualities that you'll find in any other type of mutual fund: Investors should only consider no-load funds with low expense ratios, especially when buying index balanced funds. If the funds are actively-managed, higher expenses can be justified, but there are plenty of outstanding balanced funds with active management that have low expenses.
Before we get into our list of best-balanced funds, we'll start with some of the investing basics you'll want to know (or revisit, if you're more experienced) before buying and holding for the long term.
What Are Balanced Funds?
Just as the term suggests, balanced funds are mutual funds that invest in a balance of asset types. The most basic form of investment assets include stocks, bonds, and cash. Some investment experts might include precious metals like gold and silver, as well as commodities like oil, under the heading of asset types.
Because of the balance of assets, balanced funds are like investing in two or three mutual funds, all in one diversified fund. Like other types of funds, balanced funds usually have a stated objective that's spelled out in the fund prospectus and in online information that can easily be found at the fund's company website or on the best sites for researching mutual funds.
Most balanced funds are categorized according to their respective asset allocation. The three primary categories are conservative allocation, moderate allocation, and aggressive allocation. Conservative funds typically have an asset allocation of roughly 30% stocks, 50% bonds, and 20% cash. Moderate allocation funds commonly have an allocation of about 65% stocks and 35% bonds. Aggressive funds will have around 80% stocks and 20% bonds.
Why Invest in Balanced Funds?
Balanced funds can be used for a variety of investment objectives, tactics and portfolio management purposes. Often balanced funds are used as standalone investments for beginning investors wanting to get a good start with diversified mutual funds without having to meet the minimum initial investment amounts for three or four mutual funds.
Other investors may use balanced funds as core holdings in a portfolio of funds, where there may be several other funds added for diversity. For example, an investor might allocate the largest portion of their portfolio assets to the balanced fund, then build around it with smaller allocations to funds in other categories, such as foreign stock or sectors.
Balanced Funds to Buy for the Long-Term
While some conservative allocation funds can be used for short- to intermediate-term investing (i.e., one to five years), most types of mutual funds, including balance funds, are most suitable for long-term investing (i.e., 10 years or more).
So with that backdrop, here are some good options for balanced funds to buy and hold for the long term. We'll start with conservative funds, then progress to moderate and aggressive:
- Vanguard LifeStrategy Conservative Growth (VSCGX): The asset allocation for this fund is approximately 40% stocks and 60% bonds. It allows for slow but steady growth over the long term, which makes for a good conservative fund. VSCGX has been able to average over 5% annualized return of the long term. The expense ratio is rock bottom low at 0.12%, and the minimum initial investment is $3,000.
- Vanguard Wellesley Income (VWINX): Around for more than 40 years and perhaps the best conservative allocation fund on the market, the VWINX portfolio is solidly conservative with an allocation that ranges between 35% and 40% stocks, around 60% bonds, and the remainder in around 5% cash. As for performance, Wellesley beats at least 90% of other conservative allocation funds for 3-, 5- and 10-year returns. Returns have averaged nearly 7%, which matches many funds that invest 100% in stocks. For one of the best actively-managed conservative mutual funds you can buy, it’s hard to beat the cheap expense ratio of 0.22%. The minimum initial investment is $3,000.
- Vanguard Wellington (VWELX): This fund has been around since 1929 and is still a solid, balanced fund to buy. The asset allocation for VWELX is categorized as moderate allocation because it holds approximately 65% stocks and 35% bonds. Like other Vanguard funds, you'll get a low expense ratio (0.25%) for Wellington. The minimum initial investment is $3,000.
- Vanguard Balanced Index (VBINX): If you want a low-cost, no-load index fund that holds a moderate mix of stocks and bonds, look no further than VBINX. With an ultra-low expense ratio of just 0.19% and a solid balance of 60% stocks and 40% bonds, VBINX makes for an outstanding core holding in a diversified portfolio or a standalone investment for beginners. Long-term returns have averaged between 6% and 8%. That's outstanding for a medium-risk investment of any kind. The minimum initial investment is $3,000.
- Vanguard STAR (VGSTX): By now you've noticed all the funds on our list of balanced funds thus far are from Vanguard Investments. You may have noticed that they have minimums of $3,000 to get started investing. However, VGSTX has a lower minimum of $1,000. It also is what's known as a "fund of funds," which means it invests in other mutual funds, all in one fund option. The STAR fund invests in a diversified mix of 11 Vanguard funds, making it a solid standalone option for beginning investors or those wanting a single fund solution for investing.
- Fidelity Balanced (FBALX): One of the best-balanced funds with a moderate allocation, the FBALX portfolio typically invests at least 60% of its portfolio assets in stocks and at least 25% in bonds, with the remainder in cash. It is an actively-managed fund with a history of beating category averages with long-term returns of 7% or higher. The expense ratio is a bargain for quality management at 0.55%, and the minimum initial investment is $2,500.
- T. Rowe Price Personal Strategies Income (PRSIX): We need to add one more conservative allocation fund to this list with this deserving actively-managed fund that invests its portfolio in a mix of assets that consists of roughly 40% stocks, 50% bonds, and 10% cash. The fund's objective is first for income and next for capital growth. The minimum initial investment is $2,500, and the expense ratio is a reasonable 0.60%.
- Bruce Fund (BRUFX): The Bruce Fund might have a funny name, but its long-term performance is serious. The 15-year annualized return easily tops 12%, which is better than 99% of all moderate allocation fund and most of the best stock funds. Therefore, with a blend of about 45% stocks, 30% bonds and 25% cash, this moderate allocation fund with active management can achieve above-average returns with below-average risk. Just be ready to receive sub-par returns at times in the short run in extreme market conditions. The expense ratio is 0.71%, and the minimum initial investment is $1,000.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.