If stability is what you crave, you can’t go wrong with Vanguard.
While the crowd tries to squeeze out bigger gains and chase higher yields, you can sit back and go about your life while your conservative Vanguard funds quietly win more in the long run by losing less in the short term.
Now, not all Vanguard funds are built for stability, but Vanguard does have an impressive selection of mutual funds that can pull off decent returns while keeping market risk and expenses to a minimum.
Whether you are looking for a solid core holding, a reliable conservative fund or just a place to shield your hard-earned money from volatility in uncertain markets, one of these Vanguard funds can make a fine choice.
Best Vanguard Funds for Stability: Vanguard Wellesley Income (VWINX)
Minimum Initial Investment: $3,000
If you are like most investors and you want a fund with above-average long-term returns with below-average risk, Vanguard Wellesley Income (VWINX) may be your best bet.
Had you piled all of your life savings into Wellesley Income 15 years ago while most investors were still chasing technology stocks, you would have been ridiculed out of the market.
But guess who would be laughing now? Wellesley is currently sitting on a 15-year annualized return of 7.5%, whereas the S&P 500 Index is lagging far behind at 4.5% for the same period. And this conservative Vanguard fund pulled off this impressive return with a blend of roughly one-third stocks and two-thirds bonds. Top holdings include Wells Fargo (WFC), Microsoft (MSFT) and JPMorgan Chase (JPM)
For a note on stability, VWINX has had only one negative year of returns in the past 10. The down year was 2008, when VWINX had -9.8% return, which compares to -18.6% for the average conservative allocation fund and -37% for the S&P 500.
With bonds likely nearing the end of a 30-year secular bull market run, the next 15 years may look a bit different. Still, I wouldn’t bet against Vanguard Wellesley Income.
Best Vanguard Funds for Stability: Vanguard LifeStrategy Income (VASIX)
Minimum Initial Investment: $3,000
Vanguard LifeStrategy Income (VASIX) is one of Vanguard’s most conservative balanced funds with extremely low expenses to boot.
VASIX is a “fund of funds,” meaning its holdings are other Vanguard funds, including Vanguard Total Bond Market Index II (VTBIX), Vanguard Total International Bond Index (VTIBX), Vanguard Total Stock Market Index (VTSMX) and Vanguard Total International Stock Index (VGTSX).
The four index funds make up a stable conservative asset allocation, which was recently about 19.6% stocks, 80% bonds and just a sliver of cash. The average credit quality for the bonds within the underlying fund holdings is high, with more than half receiving AAA ratings. The equity portion is predominately large-cap stocks.
With four of Vanguard’s best index funds as underlying holdings, investors have an outstanding means of creating a complete portfolio, or a conservative core holding, using a single fund.
Best Vanguard Funds for Stability: Vanguard Tax Managed Balanced (VTMFX)
Minimum Initial Investment: $10,000
For investors looking for solid performance over the long term, along with a tax-efficient style, Vanguard Tax Managed Balanced (VTMFX) is an outstanding choice.
Starting with long-term performance, the 10-year annualized return for VTMFX is 6.4%, which beats 98% of other conservative allocation funds. But potential investors should note that the performance comes with an allocation of roughly half stocks and half bonds, which makes the fund a bit more aggressive than most conservative funds.
On the bond side, the holdings average above investment grade, which limits the downside of price risk that comes with bonds of lower credit quality. The stocks are large-cap on average, and are diversified across all industrial sectors. Top equity holdings include Apple (AAPL), MSFT and Exxon Mobil (XOM).
For investors with taxable brokerage accounts, the tax-adjusted returns are ranked in the top 1% of conservative allocation funds for the one-, three, -five- and 10-year periods.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds VWINX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.