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Balanced funds are funds which have strategic allocations to both bonds and
stocks. Balanced funds can be quite useful as a temporary place to "park"
assets that are either being accumulated for more elaborate deployment, or
assets that are being temporarily stored for near-term spending. Balanced
funds may also be appropriate for those who value simplicity above all else.
There are many alternatives. Which is best?
All of the options discussed here with similar stock/bond allocations will likely have similar performance
and will get the job done quite well. You can't go far wrong choosing any
of the options listed here for any chosen stock/bond ratio. The funds are
grouped by stock/bond allocation, and within stock/bond allocation, in rough overall
order of preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
100% Stock Funds
100% stock funds aren't technically "balanced" because they include no bonds.
However, for individuals seeking a complete equity investing program in a single
fund, these funds fit the bill. These funds can be combined with bond
funds in whatever ratio you desire to form a simple, highly diversified,
two-fund, nearly complete investing program.
 | DFA Global Equity Portfolio (DGEIX). E/R: 0.27%. This
fund is a "fund of funds" which invests in several other DFA funds. It
has a strong "value" and "small" orientation. It includes foreign and
emerging market stocks, as well as REITs. It is rated higher than the
below funds due to its extraordinary diversification and its strong "value"
and "small" tilt.
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| Vanguard Total World Stock Index ETF (VT). E/R: 0.25%.
This ETF tracks the FTSE All-World Index. This fund is rated
higher than the below funds due to its extraordinary diversification and low
cost. For
more information on ETFs, see here.
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| iShares MSCI ACWI Index Fund (ACWI). E/R: 0.35%.
This ETF tracks the MSCI All-Country World Index. This fund is rated
higher than the below funds due to its extraordinary diversification. For
more information on ETFs, see here.
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| DFA US Core Equity 1 Portfolio (DFEOX). E/R: 0.22%. This
fund is an "all cap" fund which is somewhat biased towards small and value
stocks.
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| DFA US Core Equity 2 Portfolio (DFQTX). E/R: 0.24%. This
fund is an "all cap" fund which is biased towards small and value stocks, moreso than DFEOX above.
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| DFA US Vector Equity Portfolio (DFVEX). E/R: 0.35%. This
fund is an "all cap" fund which is strongly biased towards small and value
stocks, moreso than DFQTX above.
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| Vanguard Total Stock Market Index Fund Admiral shares (VTSAX). E/R: 0.07%.
This is the Admiral share class (minimum initial investment $10,000) of VTSMX
below. For
more information on ETFs, see here.
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| Vanguard Total Stock Market Index ETF (VTI). E/R: 0.07%.
This ETF tracks the MSCI US Broad Market Index, which tracks the entire US stock
market. For
more information on ETFs, see here.
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| Vanguard Total Stock Market Index Fund (VTSMX). E/R: 0.18%.
This fund tracks the MSCI US Broad Market Index, which tracks the entire US stock
market.
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| Fidelity Spartan Total Market Index Fund (FSTMX). E/R: 0.10%.
There is a 0.5% redemption fee, paid directly to the fund, for shares sold
within 90 days of purchase. This redemption fee is intended to
discourage short-term trading.
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| Schwab U.S. Broad Market ETF (SCHB). E/R: 0.06%.
This fund tracks the Dow Jones U.S. Broad Stock Market Index, which tracks the entire US stock
market.
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| Vanguard Russell 3000 Index Fund ETF shares (VTHR). E/R: 0.15%.
This is the ETF share class of the Vanguard Russell 3000 Index Fund
Institutional Shares (VRTTX). For
more information on ETFs, see here.
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| Claymore Wilshire 5000 Total Market ETF (WFVK). E/R: 0.12%.
This fund tracks the Wilshire 5000 Total Market Index, which tracks the entire US stock
market.
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| iShares Russell 3000 Fund (IWV). E/R: 0.20%. This ETF
tracks the Russell 3000 stock index, which tracks virtually all of the US
stock market. For more information on ETFs, see here.
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| iShares Dow Jones US Total Market Fund (IYY). E/R: 0.20%.
This ETF tracks the Dow Jones US Total Market Index, which tracks virtually
all of the US stock market. For more information on ETFs, see here.
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| iShares S&P 1500 Fund (ISI). E/R: 0.20%. This ETF
tracks the S&P 1500 Index, which is a market-weighted combination of the S&P
500, the S&P mid-cap 400, and the S&P small-cap 600 stock indexes. For more information on ETFs, see here.
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| streetTRACKS Total Market ETF (TMW). E/R: 0.22%. This ETF
tracks the Dow Jones Wilshire 5000 Index, which tracks virtually all of the
US stock market. For more information on ETFs, see here.
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| TIAA-CREF Equity Index Fund (TCEIX). E/R: 0.26%. This
fund tracks the Russell 3000 index, which tracks virtually all of the US stock
market.
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| DFA Tax-Managed US Equity Portfolio (DTMEX). E/R: 0.22%.
This fund tracks the entire US stock market. It attempts to minimize
both capital gain and dividend distributions. Its sampling routine and
tax-management cause it to have quite dramatic (but random) tracking error
with broad market indexes.
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| iShares NYSE Composite Fund (NYC). E/R: 0.25%. This ETF
tracks the New York Stock Exchange Composite Index. For more information on ETFs, see here.
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| Focus Morningstar US Market Index ETF (FMU). E/R: 0.05%.
This ETF tracks the Morningstar US Market Index. For more information on ETFs, see here. |
90/10 Funds
| Vanguard Target Retirement 2055 Fund (VFFVX). E/R: 0.19%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2055 approaches.
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| Vanguard Target Retirement 2050 Fund (VFIFX). E/R: 0.19%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2050 approaches.
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| Vanguard Target Retirement 2045 Fund (VTIVX). E/R: 0.19%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2045 approaches.
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| Vanguard Target Retirement 2040 Fund (VFORX). E/R: 0.19%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2040 approaches.
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| Vanguard Target Retirement 2035 Fund (VTTHX). E/R: 0.19%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2035 approaches. |
85/15 Funds
| Fidelity Four-in-One Index Fund (FFNOX). E/R: 0.27%.
This fund is a "fund of funds" which invests in several other Fidelity index
funds: 55% in Fidelity Spartan 500 Index Fund, 15% in Fidelity Spartan
Extended Market Index Fund, 15% in Fidelity Spartan International Index Fund,
and 15% in Fidelity U.S. Bond Index Fund. This fund
charges a short-term trading fee of 0.5% if you sell shares within 90 days of buying
them. This fee, paid directly to the fund, is intended to discourage
market timing. |
80/20 Funds
| Vanguard LifeStrategy Growth Fund (VASGX). E/R: 0.20%.
This fund is a "fund of funds" which invests in several other Vanguard funds:
65% in Vanguard Total Stock Market Index Fund, 15% in Vanguard Total
International Stock Index Fund, and 20% in Vanguard Total Bond Market Index Fund.
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| Vanguard Target Retirement 2030 Fund (VTHRX). E/R: 0.18%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2030 approaches. |
75/25 Funds
| Vanguard Target Retirement 2025 Fund (VTTVX). E/R: 0.18%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2025 approaches. |
65/35 Funds
| Vanguard Target Retirement 2020 Fund (VTWNX). E/R: 0.17%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2020 approaches. |
60/40 Funds
| DFA Global 60/40 Portfolio (DGSIX). E/R: 0.25%. This
fund is a "fund of funds" which invests in several other DFA funds. The
equity portion is similar to that of the DFA Global Equity Fund (DGEIX) above.
The bond portion is split between several DFA bond funds.
It is rated higher than the below funds due to its stock portfolio's
extraordinary diversification and strong "value" and "small" tilt, as well as
its bond portfolio's short duration.
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| Vanguard LifeStrategy Moderate Growth Fund (VSMGX). E/R:
0.19%. This fund is a "fund of funds" which invests in several other
Vanguard funds: 50% in Vanguard Total Stock Market Index Fund, 10% in Vanguard
Total International Stock Index Fund, and 40% in Vanguard Total Bond Market Index
Fund.
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| Vanguard Target Retirement 2015 Fund (VTXVX). E/R: 0.16%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2015 approaches.
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| Vanguard Balanced Index Fund (VBINX). E/R: 0.26%. 60%
of this fund's assets are invested in a portfolio indexed to the MSCI US Broad
Market Index of US stocks and 40% of this fund's assets are invested in a portfolio
indexed to the Barclays Aggregate Bond Index. This fund is rated below the
above two Vanguard funds primarily because it is less diversified (i.e., with
no foreign holdings).
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| TIAA-CREF Managed Allocation Fund (TIMAX). E/R: 0.39%.
This fund is a "fund of funds" which invests in several other TIAA-CREF funds. |
50/50 Funds
| Vanguard Target Retirement 2010 Fund (VTENX). E/R: 0.17%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds, including foreign stocks. It gradually becomes increasingly
conservative as the year 2010 approaches. |
40/60 Funds
| Vanguard LifeStrategy Conservative Growth Fund (VSCGX). E/R:
0.19%. This fund is a "fund of funds" which invests in several other
Vanguard funds: 35% in Vanguard Total Stock Market Index Fund, 5% in Vanguard
Total International Stock Index Fund, and 60% in Vanguard Total Bond Market Index
Fund. |
35/65 Funds
| Vanguard Target Retirement 2005 Fund (VTOVX). E/R: 0.17%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds. It gradually becomes increasingly conservative as the year 2005
approaches. |
30/70 Funds
| Vanguard Target Retirement Income Fund (VTINX). E/R: 0.17%.
This fund is a "fund of funds" which invests in several other Vanguard index
funds. |
25/75 Funds
| DFA Global 25/75 Portfolio (DGTSX). E/R: 0.22%. This fund is a
"fund of funds" which invests in several other DFA funds. The equity
portion is similar to that of the DFA Global Equity Fund (DGEIX) above.
The bond portion is split between several DFA bond funds.
We like it because of its stock portfolio's extraordinary diversification and
strong "value" and "small" tilt, as well as its bond portfolio's short
duration. |
20/80 Funds
| Vanguard LifeStrategy Income Fund (VASIX). E/R: 0.18%.
This fund is a "fund of funds" which invests in several other Vanguard funds:
20% in Vanguard Total Stock Market Index Fund, and 80% in Vanguard Total Bond
Market Index Fund. |
To our knowledge, there is only one good tax-managed balanced fund available.
If you feel you desire a "balanced" fund in a taxable account, here are some
considerations to think about:
| It is possible to get virtually any stock/bond allocation if you combine
the DFA Tax-Aware US Core Equity 2 Portfolio (DFTCX) and the DFA Tax-Aware
World ex-US Core Equity Portfolio (DFTWX) (or, if you have no access to DFA funds,
the Vanguard Total World Stock Index ETF (VT)) with a tax-exempt short-term bond fund. Such a
portfolio would be quite well diversified, simple, and tax-efficient.
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| If you use one of the "fund of funds" described above in a taxable account
and the fund invests a portion of its holdings in foreign stocks, you won't be
eligible for the foreign tax credit, which effectively lessens your net
returns on those foreign stocks. Funds of funds are not eligible to
claim the foreign tax credit.
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| if you use one of the non-tax-managed balanced funds in a taxable account,
the fund will not be very tax-efficient. Most of the balanced funds'
stock components are quite (capital gains) tax-efficient by their very nature
(i.e., the ones whose stock components track broad market indexes).
However, the bond components will tend to be extremely tax inefficient.
Bonds tend to throw off income which is taxed as normal income (which is taxed
at a relatively high marginal tax rate). |
50/50 Funds
| Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX). E/R:
0.15%. This fund's stock portfolio tracks the Russell 1000 index of large-cap stocks while minimizing both
dividend and capital gains distributions. The fund's bond portfolio
invests in intermediate-term municipal bonds |
This web page contains the current opinions of Eric E. Haas at the time it is
written — and such opinions are subject to change
without notice. This web page is for educational purposes only —
we believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us.
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