Balanced funds are mutual funds that invest in assets for a specific risk type. The type might be 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 funds are almost always those that you can hold for years or even for decades.
The top balanced funds will have all the important qualities that you'll find in any other type of mutual fund. You should only consider no-load funds with low expense ratios when buying index funds. Higher expense ratios can be justified if the funds are actively managed, but there are plenty of very good balanced funds with active management that have low expenses.
What Are Balanced Funds?
Most basic balanced funds contain stocks, bonds, and cash. Some also include precious metals like gold and silver, or even commodities like oil. Investing in balanced funds is like investing in multiple mutual funds at once.
Balanced funds usually have a stated objective that's spelled out in the fund prospectus and can be found online. Check the fund's company website.
Most balanced funds are grouped according to their asset allocation. The three primary categories are conservative, moderate, and aggressive. Conservative funds have an asset allocation of roughly 30% stocks, 50% bonds, and 20% cash. Moderate funds are roughly 65% stocks and 35% bonds. Aggressive funds will have around 80% stocks and 20% bonds.
Who Invests in Balanced Funds?
Balanced funds can be used for a variety of investment objectives, tactics, and portfolio management purposes. They're often used as standalone investments for beginning investors who want to get a good start with diversified mutual funds. They can avoid meeting the minimum initial investment amounts for multiple mutual funds.
You might use balanced funds as core holdings in a portfolio of funds, with several other funds added for diversity. For example, you might allocate the largest portion of your assets to the balanced fund. Then you could build around it with smaller allocations to funds in other categories, such as foreign stock or sectors.
Balanced Funds for the Long-Term
Some conservative allocation funds can be used for short- to intermediate-term investing of one to five years. Most types of mutual funds, including balanced funds, are most suitable for long-term investing of ten years or more. Here are some good options to buy and hold for the long run.
Vanguard LifeStrategy Conservative Growth (VSCGX)
The asset allocation for this fund is about 40% stocks and 60% bonds. It allows for slow but steady growth over the long-term, which makes it a good conservative fund. VSCGX has an expense ratio of 0.12%. The minimum initial investment is $3,000.
Vanguard Wellesley Income (VWINX)
This fund has been around for more than 40 years. It's one of the best conservative allocation funds on the market. The VWINX portfolio's allocation ranges from between 35% to 40% stocks and about 60% bonds. The rest is cash.
Wellesley beats at least 90% of other conservative allocation funds for three-, five-, and 10-year returns. They average is nearly 7%, which matches many funds that invest 100% in stocks. It has an expense ratio of 0.23%, and the minimum initial investment is $3,000.
Vanguard Wellington (VWELX)
This fund has been around since 1929. It's still a solid fund to buy. VWELX is categorized as moderate allocation, because it holds about 65% stocks and 32% bonds. The expense ratio is 0.25%, and the minimum initial investment is $3,000.
Vanguard Balanced Index (VBINX)
Look no further than VBINX if you want a low-cost, no-load index fund that holds a moderate mix of stocks and bonds. With a low expense ratio of 0.18% and a balance of 60% stocks and 40% bonds, VBINX makes for a very nice core holding in a diversified portfolio. It can also serve as a standalone investment for beginners.
Long-term returns have averaged from 6% to 8%. This is a good medium-risk fund. The minimum initial investment is $3,000.
Vanguard STAR (VGSTX)
This fund has a lower initial investment than most Vanguard funds at just $1,000. It's known as a "fund of funds" because it invests in other mutual funds, all in one option. The STAR fund invests in a mix of ten Vanguard funds, making it a solid standalone option if you're just starting out, or for those who want a single fund solution. It has an expense ratio of 0.31%.
Fidelity Balanced (FBALX)
The FBALX portfolio is one of the best balanced funds out there. With a moderate allocation, it invests at least 60% of its assets in stocks and about 25% in bonds. The balance is in cash.
FBALX is actively managed fund with a history of beating category averages. Long-term returns are 7% or higher. The expense ratio is a bargain at 0.53%, and there's no minimum initial investment.
T. Rowe Price Personal Strategies Income (PRSIX)
This actively managed fund invests its portfolio in a mix of assets that consists of roughly 40% stocks, 55% bonds, and cash. It also includes 5% in alternative investments. The fund's first goal is income, and the next is capital growth. The minimum initial investment is $2,500, and the expense ratio is 0.62%.
This actively managed fund can achieve above-average returns with below-average risk. It's a blend of about 70% stocks, and nearly 30% bonds and cash. Just be ready for sub-par returns in extreme market conditions in the short run. The expense ratio is 0.68%, and the minimum initial investment is $1,000.
NOTE: The Balance doesn't provide tax or investment advice or financial services. This information is provided without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor. It might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.