Balanced funds: Vanguard (VGSTX) and Fidelity (FBALX)

A balanced fund is a mutual fund that contains stock components, bond components, and sometimes money market components in a single investment portfolio. Generally speaking, these funds stick to a relatively fixed portfolio of stocks and bonds. Their holdings are balanced between equity and debt, and their goals are growth and income. Therefore, their name is “balanced”.

Balanced funds are for investors who seek to combine security, income and moderate capital appreciation, as well as growth and value exposure. Investors seeking to diversify their asset allocation may find these funds attractive because they strike a balance between long-term capital appreciation and capital preservation. In addition, by providing income through dividend-paying stocks and fixed-income instruments, the volatility of these investments is usually much lower than that of pure growth strategies.

There are hundreds of mutual funds suitable for this mixed value and growth category. Although many of these funds have similar profiles, some funds stand out because of their long life and consistent returns. The best funds in this group also offer low expense ratios, high-quality management teams, and limited asset turnover. Below is an analysis of two attractive funds in this category with a long track record of success.


Key points

  • Balanced funds provide investors with investment portfolios that are allocated between growth and value stocks and bond components.
  • This combination reduces risk and achieves greater diversification, which is expected by many investors.
  • Here, we only look at two popular options among the many balanced funds that investors can choose from.

Vanguard Star Investor Stock (VGSTX)

Vanguard STAR Investor Shares (“VGSTX”) are part of the Vanguard family of funds’ moderate distribution category. The fund began trading on March 29, 1985, and received Morningstar’s four-star rating within three, five, and 10-year time frames. The structure of VGSTX is a fund of funds, which means that it invests in other Vanguard mutual funds. It seeks diversified investment methods. It allocates 60% to 70% of assets to mutual funds that invest in stocks, 20% to 30% of assets to funds that invest in bonds, and 10% to 20% of assets to mutual funds. Invest in short-term funds-fixed-term, fixed-income instruments. The minimum initial investment requirement for VGSTX is USD 1,000 and the net expense ratio is 0.31%. The fund has generated above-average returns over multiple time frames.

Its three-year investor return ranks 27th among 861 funds ranked in the same period and 25th among 745 interbank funds. The fund’s 10-year return ranks 22nd among 500 funds of its kind. VGSTX is rated by Morningstar as having an average risk in this category over a three-year, five-year, and 10-year time frame. VGSTX is managed by William Coleman, who joined Vanguard in 2006 and started to manage the fund in 2013. Since the fund distributes its assets to other Vanguard mutual funds, investors can get benefits from diversifying risks among several managers who adopt different strategies.

Fidelity Balanced Fund (FBALX)

Fidelity Balanced Funds (“FBALX”) belong to the appropriate allocation category of the Fidelity Fund Family. The fund received a five-star Morningstar rating within a three-year time frame, and a four-star rating within a five-year and ten-year time frame. Its strategy is to target income and capital gains while taking moderate risks. FBALX invests approximately 60% of its assets in stocks and the rest in fixed-income securities, including high-yield bonds. The fund allocates at least 25% of its total assets to the senior portion of fixed income securities, including preferred stocks. FBALX began trading on November 6, 1986, with an annual expense ratio of 0.53%, and the minimum initial investment required was $2,500. Like VGSTX, it performed very well relative to its peer group over multiple time frames.

The fund’s three-year return ranks sixth among the 861 funds ranked in the same period. Its five-year performance ranks ninth among 745 funds of its kind. The fund achieved the 17th highest 10-year return rate of 500 funds of its kind. Tobias Welo has been the lead manager of the fund since November 14, 2011.

Compare VGSTX and FBALX

Like most index investments, a moderately allocated fund is an ideal choice for investors who buy and hold for a long time. Appropriate allocation of funds allows investors to benefit from growth and value investments, regardless of the business cycle. Both VGSTX and FBALX are attractive opportunities in this category and have different advantages. Since VGSTX is a fund in a fund, investors can obtain diversified income from different management styles, but FBALX does not provide it. In addition, the cost of VGSTX is lower than that of FBALX. However, FBALX performed slightly better than VGSTX in the middle and longer time frames. The two funds have similar allocation strategies, which makes the decisions between them very close.


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