Best Vanguard Balanced Funds

2020 best Vanguard balanced mutual funds with top Morningstar rating. Highest performing, best returns Vanguard balanced funds for IRA/brokerage account investors in the last 10 years: Wellington (VWELX), Wellesley (VWINX), and Vanguard Convertible Securities Fund (VCVSX).

Best Balanced Mutual Funds

Investors should always be concerned with asset allocation--the art and science of dividing a portfolio into stocks, bonds, mutual funds, real estate, commodities, etc.--based on goals and risk tolerance. But finding the proper mix of stocks and bonds can be confusing and time consuming. Balanced mutual funds were created to address the desire of many investors to buy one fund that addresses the stocks vs. bonds allocation question. Here are four of Vanguards best balanced funds based on long-term performance and Morningstar ratings.

The funds listed in this article all require a $3,000 initial investment for both IRAs and general accounts. Expense ratios range from 0.23% for the Balanced Indexed Fund up to 0.41% for the Convertible Securities Fund. All ratios are less than half the average expense ratio for their peer group of funds.

Vanguard Wellington Fund (VWELX)

The Vanguard Wellington Fund is one of the exemplary mutual funds currently available. It started in 1929 and became part of the Vanguard Group in 1974. It has gone through many management and investment philosophy changes over the decades, but has been a classic balanced fund with a target allocation of 60% stocks/40% bonds since coming under Vanguard's supervision.

Wellington is designed for investors who want stability and moderate income while still achieving growth from the stock portion of the portfolio. It is actively managed and currently only owns 94 stocks and 810 bonds. In contrast, most index funds own hundreds of stocks and/or thousands of bonds. This selectivity adds some risk to the stock portfolio, but good stock selection can increase returns as well. Because of superior portfolio management, Wellington Fund's 10-year annualized rate of return is 6.98%, and it outperformed its benchmark index by 0.58% over that period. It has earned a 5-star rating from Morningstar.

Best balanced mutual funds

Vanguard Wellesley Income Fund (VWINX)

The Vanguard Wellesley Income Fund is the second jewel in the Vanguard Group's balanced funds. It was started in 1970, making it one of the older funds in the mutual fund universe. As an actively managed fund similar to the Wellington Fund, Wellesley also strives for about a 60/40 mix of bonds and stocks.

The portfolio is concentrated with only 58 stocks and 821 bonds. The fund typically invests in fewer than 100 stocks but looks for those paying higher than average dividends that also have stable or improving fundamentals. This strategy partially offsets the risk of fewer stocks in the portfolio. The bond component is similar in yield and duration to the Wellington Fund's bond portfolio.

Wellesley Income Fund's 10-year annualized rate of return is 6.72%, and it outperformed its benchmark index by 0.65% over that period. It has earned a 5-star rating from Morningstar.

Best vanguard balanced funds

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Vanguard Convertible Securities Fund (VCVSX)

The Vanguard Convertible Securities Fund is an uncommon balanced fund choice because it invests primarily in bonds that can be converted into common stock at a predetermined price. Convertible bonds are relatively illiquid, which is the fund's primary risk along with some credit risk because convertible securities either have low credit quality or are unrated. Vanguard advises that this fund should be used as a complement to an already diversified portfolio.

Assets are highly concentrated with only 9 stocks and 185 bonds in the portfolio. It should be noted that bonds have performed well in times when interest rates have dropped, so if rates begin to rise over a long period of time, portfolios containing bonds may underperform relative to other asset classes. That said, the Convertible Securities Fund had a 10-year annualized rate of return of 7.04% and outperformed its benchmark by 0.76%. It has earned a 4-star rating from Morningstar.

Best vanguard balanced fund

Best Vanguard Balanced Funds Conclusion

Balanced mutual funds are sometimes seen as middle-of-the-road, unspectacular performers in an investment climate where everyone seems to be looking for the next big winner. But every portfolio should have a stable, dependable core of investments that will offset the extreme volatility caused by booms and busts. These three top Vanguard balanced funds offer competitive returns with no upfront costs and some of the lowest expense ratios in the industry.

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Vanguard is a client-owned brokerage firm that provides some unique investment services. The company has a band of loyal followers who swear by the ownership model and pricing structure. Let's take a closer look at this unique broker and see what it has to offer for retirement account investors.

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