Conservative investors and retirees are facing a challenging environment for finding the best funds to buy. With rates near zero, and looking as if they will stay extremely low for the foreseeable future, yields from bonds, dividend stocks and mutual funds are also likely to remain painfully low.
But investors that are either nearing retirement or are already retired are wise to equally balance the three primary objectives of preservation, income and growth. Too much of any one objective can derail or even destroy a retirement portfolio.
Considering today’s environment of low yields for cash and bonds and high relative risk for stocks, here are three funds to buy for conservative retirees (and for those investors looking to reduce market risk in the short-term).
Funds to Buy for Conservative Retirees — James Balanced: Golden Rainbow (GLRBX)
Well-managed conservative funds will do a good job of smoothing out the rough edges of volatility while achieving long-term returns that are higher than the rate of inflation and James Balanced: Golden Rainbow (GLRBX) exceeds these expectations.
For example, in 2008, the S&P 500 Index had a -37.0% return, followed by a 26.5% bounce in 2009. By comparison the Golden Rainbow fund had a slight dip of just -5.5% in 2008, with a modest gain of 7.1% in 2009. Some quick math tells you that the 2-year period ended negative for stocks but positive for GLRBX.
This is what conservative portfolio management is about: Missing the worst broad market declines, while participating in just enough of the biggest gains to minimize risk while achieving reasonable returns. For evidence, look no further than the 10-year annualized return of 7.5% and a 15-year return of 7.3%.
The current asset allocation for the fund is solidly conservative at approximately 44% stocks, 51% bonds, and 5% cash. Top holdings are predominately US Treasury Bonds, balanced with mid-cap stocks, such as the moving and storage company, Amerco (UHAL), and the large-cap retailer, Macy’s (M).
You can buy shares with an initial purchase of $2,000. The management fee for GLRBX runs 0.7%, or $70 anually per $10,000 invested.
Funds to Buy for Conservative Retirees — Vanguard Wellesley Income (VWINX)
Vanguard Wellesley Income (VWINX) is on my list of Vanguard Funds for the ‘Set It and Forget It’ Investor for a few one primary reason: You get a low-cost, conservative fund that can provide both stability and solid long-term returns.
VWINX has a 10-year annualized return of 7.3%, which outperforms 98% of its conservative allocation peers. The 2.59% yield is also good, considering the bond portion of the portfolio consists of nothing but bonds at or above investment-grade quality.
Vanguard Wellesley Income has a low expense ratio of 0.25% and requires a minimum initial purchase of just $3,000.
Funds to Buy for Conservative Retirees — Berwyn Income (BERIX)
Berwyn Income (BERIX) rounds out our list of conservative funds that have accomplished long-term returns greater than 7% without abandoning the conservative style.
In fact, Berwyn Income equity positions can’t exceed 30% of assets, which is lower than the category average for conservative allocation funds, yet it’s 10-year return of 7.5% ranks higher than 99% of category peers. This is low-risk/high return investing at its best!
That long-term performance is helped by a smart combination of corporate bonds and mid-cap value stocks. A recent allocation of 30% to cash looks to enable the fund management to minimize losses but also take advantage of buying opportunities in a down market.
On top of performance, you’ll also get a decent yield of 2.28% for a low-cost expense ratio of 0.66%.
The initial purchase price is $3,000.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.