One of the entire mutual fund industry’s original balanced funds is Vanguard Wellington (VWELX) (Buy). Since its inception in July 1929, balanced funds have held out the promise of strong relative returns in good and bad markets by focusing on one very important investment discipline: diversification.

For all the fancy-schmancy options that the mutual fund industry likes to throw at investors today, the basic strength of a good balanced fund is a commitment to invest in both stocks and bonds and, one would hope, continually rebalance that allocation as cash flows and market action allow.

Manager Ed Bousa took the lead management position at Wellington in 2003 with nary a change in the fund’s strong and consistent gait and very minor changes in the portfolio, which is precisely what I had expected, as he had worked with former manager Ernst Von Metzsch for so long.

As is the case with its younger sibling, Vanguard Wellesley Income (VWINX), Wellington’s bond holdings are now intermediate rather than long term in nature, which cuts risk.

I like this fund for its higher allocation to equities (65% of assets) and the flexibility Bousa has in choosing stocks for growth rather than dividends. Because Wellington is not bound by a requirement that it produce a prodigious yield, its stock holdings are more diversified.

I’d consider Vanguard Balanced Index (VBINX) (Buy) over this fund if taxes are a huge concern or if you can’t manage Wellington’s $10,000 minimum.

Balanced Index rivals Wellington as one of the best balanced funds in the Vanguard family (though my nod still goes to the team of active managers at Wellington). Its mandate is to put 60% of its assets in a basket of stocks which mimic the MSCI US Broad Market index and the remainder in bonds that track the Barclays Aggregate Bond index. That’s close to the same allocation as you’ll find at Wellington, except everything here is indexed.

You could buy Vanguard Total Stock Market Index (VTSMX) and Total Bond Market Index (VBMFX) funds to achieve the same mix or to vary the components, but Balanced Index simplifies things. The use of Total Stock Market (or in this case, the mimicry of the MSCI index) gives at least a bit of exposure to the smaller and mid-cap stocks that I prefer. This is a good, all-in-one offering.

Use this fund in taxable accounts and Wellington in tax-deferred accounts if you can’t decide which way to lean. The reason: Because Wellington’s managers tilt their fund toward value stocks, which tend to pay higher dividends, it has at times been less tax-efficient than Balanced Index.

But in all but the most “growthy” markets, when Wellington’s value orientation holds it back, Wellington is a solid fund for more risk-averse investors looking for an equity-heavy balanced fund. It’s one of my absolute favorites in the balanced camp.

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