Balanced funds are the workhorses in many investors’ portfolios. Combining stocks and bonds, they aim to provide investors with a well-diversified package in a single shot and can reduce the need for a lot of hands-on oversight. Such funds are typically rebalanced back to a target stock/bond mix so investors don’t need to get their hands dirty making allocation changes. And because the equity portion of the portfolio often thrives when the bond piece is struggling, and vice versa, the funds’ returns often chart a steady course. That makes them easy to own: Morningstar’s various allocation categories often have among the most impressive investor returns of any fund type. For this list, we screened for three types of Gold-rated allocation funds: Conservative (which hold more bonds than stocks), aggressive (which hold more stocks than bonds), and moderate (which are in between).
Morningstar Analyst Rating
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Allocation (Balanced) Funds
Allocation funds seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. Morningstar divides allocation funds into five categories depending on how much they tend to invest in stocks (equities): 15% to 30% equity, 30% to 50%, 50% to 70%, 70% to 85%, and 85%+. Equities offer more return potential over time, but also greater volatility, so investors who pick balanced funds tilted toward equity should expect a bumpier ride. Morningstar divides allocation funds into these five groups to ensure fund categories contain substantially similar funds, making comparisons more meaningful.
The Analyst Rating for Funds is based on our fund analysts’ conviction in a fund’s ability to outperform its peer group (funds in the same category) and benchmark on a risk-adjusted basis over the long term. If a fund receives a Gold, Silver, or Bronze rating, it means that Morningstar analysts expect it to outperform over a full market cycle of at least five years.
This list includes only no-load funds. “No load” refers to a mutual fund that does not charge a fee (known as a load) for buying or selling its shares; the investor typically buys no-load funds directly from a fund company or through a fund supermarket. Load funds, on the other hand, are sold by an advisor or broker and charge a percentage fee at purchase or sale of the shares, which is meant to be compensation for the planner’s investment-selection advice. (Note: Not all advisors sell load funds. Many are compensated via a flat fee or a percentage of all assets under management.) Whether a fund charges a load or not isn’t a reflection of its underlying quality. Many load funds are also Medalists, and some load funds are available without a load through 401(k) or other retirement plans. But we’re including only no-load funds here, since this list is designed to help investors who are primarily doing their own fund-picking.
Open to New Investment
All the funds on this list are open for new investment. Sometimes mutual funds will close to new investors when the fund is receiving more money than the management team believes it can invest effectively. Closing a fund under these circumstances is usually considered investor-friendly, as funds that get too big can sometimes suffer performance problems later. Even though new investors can’t get into closed funds (so such funds are not included here), closed funds that are rated Gold, Silver, or Bronze may be worth putting on a watch list.
Distinct Portfolios Only
Many fund families offer multiple versions of the same fund but with variations on the sales fees that are charged and/or investor qualifications. Screening for “distinct portfolios only” removes all but one of these options to avoid having several share classes of the same offering cluttering the list. Morningstar normally designates the oldest share class as the distinct portfolio. In some cases, this share class may be for institutions (such as company retirement funds) or otherwise have a high investment minimum. In those cases, investors may want to consider an “investor” share class of the same fund, though the fund expenses may be higher for those share classes.