Conservative investors today face a challenging environment — which means it might be a smart time to turn to one of the best-managed conservative allocation mutual funds.
With interest rates near zero and not looking to go anywhere but sideways or up, and stocks growing increasingly volatile, even a more aggressive investor can prudently use conservative mutual funds.
Even if you don’t use them as a core holding, they can make a great temporary parking place for assets you don’t want to have fully exposed to market risk.
This is what conservative portfolio management is all about today: Participating in any of the upside remaining for stocks while minimizing the downside when the inevitable bear market becomes reality.
And with that backdrop, I share with you three of the best funds for conservative investors.
3 Best Mutual Funds for Conservative Investors: Vanguard Wellesley Income (VWINX)
Vanguard Wellesley Income (MUTF:VWINX) is about as solid of a mutual fund as conservative investors can buy today.
Current management has been in place for approximately seven years, and performance during that time has been nothing but exemplary. The 1-year, 3-year, 5-year and 10-year annualized returns places Vanguard Wellesley ahead of at least 90% of other conservative allocation funds.
The asset allocation for VWINX was recently about 68% stocks, 31% bonds and 1% cash. While a few top holdings, such as Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM), were a drag on 2014 performance, the Wellesley fund still managed to outperform 94% of other conservative allocation funds last year.
Also, for conservative investors that need income, VWINX has in impressive 2.5% yield.
The expense ratio is a cheap 0.25%, or $25 for ever $10,000 invested, and the minimum initial purchase is $3,000.
3 Best Mutual Funds for Conservative Investors: T. Rowe Price Personal Strategies Income (PRSIX)
The most conservative among T. Rowe Price’s Personal Strategy suite of all-in-one funds, T. Rowe Price Personal Strategy Income (MUTF:PRSIX) is an outstanding conservative allocation fund.
The top 5 holdings are other T. Rowe Price funds, which comprise roughly 20% of the portfolio, and the other 80% includes individual stock securities, most of which are large-caps, and bonds with an average credit quality of ‘BB’, which is just below investment grade.
The current lead managers, Charles M. Shriver and Edmund M. Notzon, III, have been at the helm for a little less than three years but performance during their tenure, which ranks ahead of 87% of conservative allocation category peers, is just as stellar as the longer-term performance ranks, which are also comfortably in the top quartile.
Expenses for PRSIX are 0.73%, or $73 for every $10,000 invested, and the minimum initial purchase amount is $2,500.
3 Best Mutual Funds for Conservative Investors: 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. The James Balanced: Golden Rainbow (MUTF:GLRBX) exceeds these expectations.
For example, in 2008, the S&P 500 Index had a -37% 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. Missing the worst of declines but capturing a good piece of the market recoveries is how the best conservative funds stay the best.
The recent asset allocation for GLRBX was solidly conservative at approximately 48% stocks, 49% bonds and 3% cash.
The lead managers (all in the James family) have been with the fund for 19 years, and their track record is outstanding with top 10% (or better) ranks in the 1-year, 3-year, 5-year, 10-year and 15-year annualized returns versus other conservative allocation funds.
You can buy shares with an initial purchase of $2,000. The management fee for GLRBX runs at 1.01%, or $101 annually per $10,000 invested.
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.