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A Fund to Keep Your Balance
in a Turbulent Market

By Ryan Ermey
Kiplinger’s Personal Finance

If the prospect of a decline in the stock market keeps you up at night, owning a “balanced” mutual fund that splits assets between stocks and bonds may help you get more shut-eye.

These funds can’t keep up with stocks in a bull market, but they tend to lose less when stocks decline. In 2008, when Standard & Poor’s 500-stock index surrendered 37 percent, funds that allocate 50 percent to 70 percent of assets to stocks, with the remainder in bonds, lost just 28 percent on average.

Because these funds rebalance assets to a set allocation, they can help take emotion out of investing. For investment minimalists, these funds can serve as all-in-one portfolios.

Investors looking to take some of the edge off a stock-heavy portfolio as well as add some diversification should consider Vanguard Star Fund, which invests in 11 low-cost, actively managed Vanguard mutual funds. The fund typically invests about 60 percent of assets in stocks, with the rest in bonds. The three-fund bond portfolio focuses on investment-grade bonds with both short- and long-term maturities, as well as government-issued mortgage-backed securities. Star’s eight stock funds invest in firms of different sizes and include growth-oriented and bargain-priced stocks both in the U.S. (about 66 percent of the stock portfolio) and abroad (about 33 percent).

The fund rebalances to its 60-40 allocation on an ongoing basis, and the 11 funds have held the same weighting in the portfolio since 2010, when Vanguard upped the fund’s international stock exposure from 15 percent to 20 percent.

With the exception of the Vanguard Short-Term Investment Grade fund, all of Star’s underlying funds are run by at least one manager from outside Vanguard. Last year, two of the firms managing the small-cap Vanguard Explorer fund were jettisoned in favor of a team from ClearBridge Investments.

Unlike many funds that invest in other mutual funds, Star charges investors only the expenses of its underlying holdings. At 0.32 percent, the fund’s expense ratio falls well below the 0.89 percent charged by the average balanced fund. Including 2018 (through mid-March), Star has beaten the return of its average peer in eight of the past nine calendar years.

Editor’s Note: Ryan Ermey is a staff writer at Kiplinger’s Personal Finance magazine,

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