Balanced Mutual Funds Provide Defense
For conservative investors seeking a little balance in their lives during volatile times, a balanced mutual fund makes sense in 2010.
With a typical mix of around 60 percent stocks and 40 percent fixed income, balanced funds split the difference between growth from stocks and income from bonds. Each portion has different managers, providing an investment that functions like two separate funds in one.
For some investors, this risk-reducing hybrid provides one less thing to worry about. For others, however, it represents just half a loaf because it will never supply the euphoric results of a rousing stock market rally.
Stocks include blue chips such as
"I would say a balanced fund is best as a core investment for investors who want exposure to equities but have some lingering concerns about them," said
In the case of
"Not only is there a different team running equities than fixed income, but within equities we have a different person running the financial services portion than the technology portion," said Hogan in explaining the fund's risk-spreading. That "no-load" (no sales charge) fund requires a
Critics say investors should simply buy a stock fund and a bond fund based on their own needs, even though that might require some longer-term asset adjustments by the investor.
"A disadvantage of a balanced fund is that there's nothing customized about it so will fit each individual's needs," said
Evensky does acknowledge that "reasonably-priced and reasonably-allocated" balanced funds have the advantage of simplicity since they keep rebalancing themselves as time goes on.
Wellington currently holds 105 stocks and 858 bonds. Stocks include
If you fancy yourself a self-directed investor, you might get itchy not knowing exactly how all the pieces of the balanced-fund machinery are performing. It's hard to go with automatic transmission when you're used to driving stick shift.
"A problem is that you can't separate out the performance of the stocks and bonds but instead will receive the overall performance of the fund in total," said
The low expense ratios of balanced funds is due to the fact that there are few active asset allocation decisions. This is also money that stays put because conservative investors don't want to try anything fancy.
Run by a 15-member investment committee, it is more bullish on stocks than are many other balanced funds and willing to take chances on out-of-favor stocks. It currently has 71 percent of its portfolio in stocks, 27 percent in bonds and the rest cash.
Dodge and Cox Balanced owns 82 stocks and 252 bonds, the top stock holdings recently including
Dull and boring? For conservative investors, balanced funds are a sensible balancing act that lets them sleep better in turbulent times.
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