Weary of endless surprises?
Want to 'let George do it'?
Then think about a quaint, unfashionable fund category. Balanced funds.
Rest assured, if you gave any thought to such funds, you would be in a small group. No one has paid any attention to balanced funds for years. Indeed, Investment Company Institute figures show that the category was in net redemption last year with a net outflow of $6.6 billion.
If you want your investments to work more like a traditional pension plan, however, you need only find a good balanced fund and stick with it. Balanced funds also tend to have less price volatility. This means you lose less money---and less sleep---when the market swoons.
Indeed, it appears that balanced funds are likely to capture about 90 percent of the return of a pure stock fund with about half the risk.
Then spend a few minutes with the table below. It shows performance and risk figures for the average domestic equity fund, the average domestic hybrid fund and the performance of the five largest hybrid funds. It also shows performance for the best of the breed.
If any of these funds was offered in your 401k plan and you picked it, you'd have nothing to worry about. You got near stock market returns with half the risk.
|Equity Returns With Half the Risk|
|Investment||Last 12 months||Last 3 years||Last 5 years||Last 10 Yrs||3yr. Std Deviation|
|Vanguard 500 Index||-21.64||3.08||14.15||14.32||19.28|
|Average Domestic Equity Fund||-16.05||3.19||10.87||12.58||24.04|
|Average Domestic Hybrid Fund||- 5.38||3.20||8.93||10.25||11.61|
|----Versus the five largest mixed funds|
|Vanguard Wellington ($23.5 Bil.)||11.73||6.12||12.30||12.94||11.33|
|Fidelity Puritan ($20.3 Bil.)||4.27||4.96||6.12||11.01||10.54|
|American Funds Income A ($18.8 Bil)||10.95||4.38||10.68||12.01||9.37|
|Fidelity Asset Manager ($12.0 Bil)||- 7.70||5.73||11.50||11.51||12.28|
|Vanguard Asset Allocation ($8.8 Bil)||- 9.91||4.45||12.47||13.13||12.11|
|---And the top five performers|
|Oppenheimer Quest Balanced Value A||12.12||14.20||19.07||Na||15.93|
|T. Rowe Price Capital Appreciation||25.12||10.19||13.15||12.94||10.39|
|Leuthold Core Investment||15.34||12.33||13.89||Na||9.36|
|Dodge and Cox Balanced||15.94||9.62||13.62||13.65||11.92|
|American Funds Balanced A||16.47||8.14||12.46||12.54||10.39|
|Source: Morningstar Principia, March 31 data; all figures in percent|
The performance of Oppenheimer Quest Balanced Value fund, which tops the balanced fund list, rests on a narrow portfolio of 20 to 25 stocks that has been masterfully managed over the last five years. A load fund with A, B, and C shares, this fund is widely distributed through brokers and has about $1.2 billion in assets under management.
T. Rowe Price Capital Appreciation is a hybrid fund whose 10 year performance is in the top 8 percent of all hybrid funds--- not to mention better than the average equity fund. It has less than $1 billion in assets under management and requires a minimum initial investment of $2,500. You can learn more by calling 800-638-5660.
Leuthold Core Investment fund, with less than $100 million in assets is the smallest and least known. It has a minimum investment of $10,000. A no-load fund, you can learn more by calling 800-273-6886. Steve Leuthold whose firm and research are frequently mentioned in this column manages the fund. Note that it has the lowest risk of any fund mentioned--- but nearly beat the S&P index funds over the last 5 years.
Dodge and Cox Balanced has $4.9 billion under management and has been mentioned in this column many times due to its long-term record. Minimum investment is $2,500 and you can learn more by calling 800-621-3979.
American Funds Balanced A shares has $6.3 billion under management and is sold through brokers with a minimum initial investment of $250. Yes, you read that right--- $250 gets you into a fund that has been in the top 10 percent, or better, of all balanced funds over the last 10 years. While the fund has a front-end load of 5.75 percent, the annual expense ratio is only 0.66 percent. This is the kind of fund where the broker gets paid for advice and the customer is well served.