Vanguard Balanced Index Fund
From Bogleheads
| Company: | Vanguard |
|---|---|
| Fund category: | Balanced |
| Benchmark: | Balanced Composite Index[1] |
| Start date: | 11/09/1992 |
| Expense ratio: | 0.19% |
| [1] Consists of the MSCI US Broad Market Index (60%) and the Barclays Capital U.S. Aggregate Bond Index (40%). | |
Vanguard Balanced Index Fund is a moderate allocation product which passively invests in a wide swath of the U.S. stock and bond markets. According to the fund's prospectus:
With 60% of its assets, the Fund seeks to track the investment performance of the Morgan Stanley Capital International® (MSCI®) US Broad Market Index, which represents 99.5% or more of the total market capitalization of all the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market. The Fund typically holds 1,200–1,300 stocks in the Index and a representative sample of the remaining stocks.With 40% of its assets, the Fund seeks to track the investment performance of the Lehman Brothers U.S. Aggregate Bond Index, which measures a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States— including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. At least 80% of the bond portion of the Fund is invested in bonds held in the Lehman Brothers U.S. Aggregate Bond Index, and all of the Fund’s bond holdings are selected through the sampling process. The bond portion of the Fund maintains a dollar-weighted average maturity consistent with that of the Index, which ranges between 5 and 10 years.
The Fund Holdings page on the Vanguard website reports that as of 11/30/2008, the fund invests in 3,393 stocks and 2,360 bonds, while the composite benchmark index includes 3,731 stocks and 9,256 bonds. For a detailed accounting of the fund's positions, updated quarterly, refer to this webpage.
Balanced Index is essentially equivalent to 60% Vanguard Total Stock Market Index Fund and 40% Vanguard Total Bond Market Index Fund.
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Share Classes
Two share classes are available to individual investors:
- Investor (VBINX), with an expense ratio (ER) of 0.19% and an initial minimum investment of $3,000
- Admiral (VBIAX), with an ER of 0.10% and a minimum investment of $100,000, except $50,000 suffices for conversion of an Investor Shares account in existence 10 years
Two additional share classes are offered through some workplace retirement plans:
Advantages
Low expenses
The fund's low expense ratio (.07 to .19 per cent, depending on fund share class) compares favorably to the average multi-asset class fund expense ratio of 1.17 percent.
Broad Coverage
Criticisms
Although this fund covers a very wide swath of the U.S. stock and bond markets, it has no significant exposure outside of U.S. markets. The MSCI U.S. Broad Market Stock Index can include companies headquartered outside of the U.S. if they do primarily all of their business within the U.S., but this currently amounts to only 0.4% of the index. And while the Lehman Brothers Aggregate Bond Index does include 3.0% foreign bonds, they are all Yankee bonds, which are denominated in U.S. dollars.
Performance
This historical returns webpage provides VBINX performance for each of the 16 full calendar years the fund has been in existence. During this 1993-2008 period, the fund had an average annualized return of 6.85% compared to the benchmark return of 7.05%. Its best calendar year result was +28.64% (1995), and its worst was -22.21% (2008).
Vanguard benchmarks VBINX to the internally maintained "Composite Balanced Index":
Made up of two unmanaged benchmarks, weighted 60% Dow Jones Wilshire 5000 Index and 40% Lehman U.S. Aggregate Bond Index through May 31, 2005; 60% MSCI US Broad Market Index and 40% Lehman U.S. Aggregate Bond Index thereafter.
The fund's tracking error relative to its bogey varied from -0.72% (1993) to +0.18% (1999).
Vanguard Institutional reports updated three year standard deviations of monthly returns. This measure of return volatility shows the fund had a 9.72% standard deviation compared to the 9.44% standard deviation of the benchmark as of 11/31/08.
Tax Efficiency
The fund's broad market indexing methodology provides for a moderate degree of tax-efficiency. The life of fund mean distributions have provided investors with a 3.27% mean annual dividend yield, as well as a 0.28% average annual capital gains distribution. The fund's detailed distribution history is available at Vanguard Balanced Index Fund Tax Distributions. Investors desiring maximum tax-efficiency in a balanced fund should consider the Vanguard Tax-Managed Balanced Fund.
History
Inception dates of the various share classes are as follows:
- Investor: 11/09/1992
- Admiral: 11/13/2000
- Institutional: 12/01/2000
- Signal: 09/01/2006
The fund's fiscal year ends on 12/31 of each year.
Links
See Also
