Course 209: How to Invest for Intermediate-Term Goals
What About Balanced Funds?
In this course
1 Introduction
2 Start with the Right Mix
3 Which Investments to Choose
4 What About Balanced Funds?

A balanced fund is another option for intermediate-term investors. Balanced funds, which are often called hybrid funds, own both stocks and bonds. They earn the "balanced" moniker by keeping the balance between the two asset classes pretty steady, usually placing about 60% of their assets in stocks and 40% in bonds.

For some in-betweeners, though, that stock position may be too small. Many balanced funds hold larger stock positions, however. Review a balanced fund's portfolio holdings to find out how largeits stock position is. (Morningstar divides balanced funds into two categories: conservative-allocation funds, which hold only 20%-50% of their assets in stocks, and moderate-allocation funds, which are more aggressive, holding 50%-70% of their assets in stocks. Most balanced funds' names won't indicate whether they are conservatively or moderately allocated, so you'll need to check their Morningstar category and dig into their portfolio holdings to investigate.)

The downside to balanced funds: costs. You can often buy a short-term bond fund and a large-blend fund and pay less in annual expenses than if you'd just bought a balanced fund.

But balanced funds are certainly convenient, and they're not all high-cost. We've put together a list of modest-cost balanced funds using Morningstar.com's Fund Screener. Here's what we did:

  • Go to the Fund Screener
  • Under Fund Group, choose Balanced.
  • Under Morningstar Category, choose Moderate Allocation or Conservative Allocation.
  • Under Expense Ratio Less Than or Equal To, choose Category Average.
  • Under Morningstar Category Rating, choose 4 and 5.
  • Hit Show Results.
  • From the Results Page, click on the Expense Ratio (%) column to rank the list from lowest to highest expense ratios.

You can manipulate any of the inputs, if you'd like, narrowing your search even further.

Premium Members can also find a list of the balanced funds Morningstar fund analysts like best in our Fund Analyst Picks. (This is a benefit of Premium Membership, but nonmembers cansign up for a free trial.)

Next: The Quiz >>


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