Which of these balanced funds is best for medium term time horizon (5 to 10 years)?
- Vanguard Balanced Index Fund (VBIAX)
- Vanguard Wellesley Income Fund (VWINX)
- Vanguard Wellington Fund (VWELX)
I have always invested in the Vanguard balanced index fund, but I may consider the other two funds for future investments. Could someone explain their advantages and disadvantages over VBIAX?
|Funds||Vanguard Balanced Index Fund Admiral Shares||Vanguard Wellesley Income Fund Investor Shares||Vanguard Wellington Fund Investor Shares|
|Price||44.82 (NAV)||27.57 (NAV)||43.87 (NAV)|
|3-year total return||+12.03%||+8.28%||+11.98%|
|3-year standard deviation||11.38%||7.49%||11.83%|
|Min. initial investment||3,000.00 USD||3,000.00 USD||3,000.00 USD|
|Net expense ratio||0.07%||0.22%||0.24%|
|Total net assets||44.33bn USD||12.34bn USD||14.73bn USD|
|Morningstar category||Allocation–50% to 70% Equity||Allocation–30% to 50% Equity||Allocation–50% to 70% Equity|
Over the past 20 years, Wellesley (VWINX) has had a better return (CAGR) and smaller drawdown than the VBIAX. Wellington is 2/3 stocks, so it could outperform the other two at the expense of higher drawdowns / volatility.
The VWINX and VWELX funds pay out capital gains annually and have slightly higher expense ratios. The Vanguard Balanced Index (and Retirement income) retain capital gains making them more tax efficient but many retirees like getting “paid” without selling. Balanced should have a marginally higher total return.
If you like diversification, it would not be against the law to own all three funds and maybe throw in some Vanguard Star in the mix as well. Vanguard Balanced Index Fund would be preferable if it was in a taxable account and you were trying to keep dividends and capital gains to a minimum.
Vanguard’s VBIAX is more tax efficient and not managed. I guess it comes down to your asset allocation. You can add more diversification to your current portfolio unless you are investing separately.
Either way, it comes down to asset allocation and the funds: one is more conservative, and the other is similar to what you have, but VWINX and VWELX are managed and value-oriented.
Neither Wellington nor Wellesley Income funds are recommended for short-term use. Investors with a medium- or long-term time horizon who have a goal of a steady income and who are willing to accept more volatility with VWELX and more modest movement with VWINX share price may wish to consider this/these funds as core holdings in their portfolio.
In terms of return on investment, Wellington, with its 65/35 asset allocations, tends to perform better in up markets. In contrast, Wellesley Income, with its 35/65 AA, tends to perform better in down markets by losing less, which needs to be recouped and increased further.
Since both are balanced mutual funds, combining them in various proportions tends to average out their good and bad points to a certain extent. Most investors cannot go wrong having either a core of Wellington or Wellesley or a W/W combo.
FBALX is the Fidelity equivalent of VBIAX. It is the ticker symbol for Fidelity Balanced Fund.
It has an expense ratio of 0.51% and net portfolio assets of 36 billion dollars.