investing

Balanced Funds Help Investors Weather Stormy Markets

Vanguard Star Fund takes a big bite of bonds to provide some calm.

If the prospect of a decline in the stock market keeps you up at night, owning a "balanced" mutual fund that splits assets between stocks and bonds may help you get more shut-eye. These funds can't keep up with stocks in a bull market, but they tend to lose less when stocks decline. In 2008, when Standard & Poor's 500-stock index surrendered 37%, funds that allocate 50% to 70% of assets to stocks, with the remainder in bonds, lost just 28% on average.

Because these funds rebalance assets to a set allocation, they can help take emotion out of investing. For investment minimalists, these funds can serve as all-in-one portfolios.

Investors looking to take some of the edge off a stock-heavy portfolio as well as add some diversification should consider Vanguard Star Fund (symbol VGSTX), which invests in 11 low-cost, actively managed Vanguard mutual funds. The fund typically invests about 60% of assets in stocks, with the rest in bonds. The three-fund bond portfolio focuses on investment-grade bonds with both short- and long-term maturities, as well as government-issued mortgage-backed securities. Star's eight stock funds invest in firms of different sizes and include growth-oriented and bargain-priced stocks both in the U.S. (about 66% of the stock portfolio) and abroad (about 33%).

The fund rebalances to its 60-40 allocation on an ongoing basis, and the 11 funds have held the same weighting in the portfolio since 2010, when Vanguard upped the fund's international stock exposure from 15% to 20%. With the exception of the Vanguard Short-Term Investment Grade fund, all of Star's underlying funds are run by at least one manager from outside Vanguard. Last year, two of the firms managing the small-cap Vanguard Explorer fund were jettisoned in favor of a team from ClearBridge Investments.

Unlike many funds that invest in other mutual funds, Star charges investors only the expenses of its underlying holdings. At 0.32%, the fund's expense ratio falls well below the 0.89% charged by the average balanced fund. Including 2018 (through mid March), Star has beaten the return of its average peer in eight of the past nine calendar years.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021

Recommended

Is a Target Date Fund Right for You?
investing

Is a Target Date Fund Right for You?

You're busy, and poring over investments is a pain. Wouldn't a target date fund be easier? Take a look at their pros and cons to see if incorporating …
September 14, 2021
Water Investing: 5 Funds You Should Tap
ETFs

Water Investing: 5 Funds You Should Tap

As the importance of water sustainability becomes ever more apparent, so too do the potential rewards of investing in water.
September 10, 2021
Is the Stock Market Closed on Labor Day?
Markets

Is the Stock Market Closed on Labor Day?

Stock markets and bond markets alike will enjoy their annual three-day weekend as America observes Labor Day.
September 5, 2021
10 Terrific Retirement Funds That Tackle Every Need
mutual funds

10 Terrific Retirement Funds That Tackle Every Need

Retirees and those nearing the end of their careers must consider growth, income and safety for their investments. Here are 10 mutual funds and ETFs t…
September 3, 2021