Comparing Balanced Funds

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Saphomd
Posts: 165
Joined: Tue Apr 03, 2012 6:11 pm
Location: SF, CA

Comparing Balanced Funds

Post by Saphomd » Fri Nov 25, 2016 3:36 pm

Greetings:

So I compared the following three balanced funds:

Vanguard Balanced Index Fund (VBIAX)-------ER 0.08%
Vanguard Star (VGSTX)..........0.34%
Dodge and Cox Balanced (DODBX)----------0.53%


The average total annual return after taxes and sale of fund shares:

VBIAX 1 year 6.56%....3year 5.94%....5 year 8.54%....10 year 5.19%
VGSTX 6.90.............4.86.............7.96...............4.57
DODBX 7.80.............5.61.............10.55..............4.27



So VBIAX has higher returns due mainly to its lower ER and the fact that its an Index fund? ( Compared to the Star fund which is active fund and higher ER?)

Then again, Dodge and Cox is an active fund with a higher ER but does well compared to the other two.

Or perhaps I should have compared all three against the benchmark? :confused

trasmuss
Posts: 230
Joined: Sun Oct 26, 2008 7:10 am

Re: Comparing Balanced Funds

Post by trasmuss » Fri Nov 25, 2016 3:40 pm

Add Wellington to your mix.

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investorguy1
Posts: 543
Joined: Mon Nov 24, 2014 7:13 pm

Re: Comparing Balanced Funds

Post by investorguy1 » Fri Nov 25, 2016 3:43 pm

One word for you, "Vanguard LifeStrategy Moderate Growth Fund". Forget about the added risk of active management and having to keep up with comparing each of them some times one will be ahead some times another. In the long run the index should be a head of most.

lack_ey
Posts: 6605
Joined: Wed Nov 19, 2014 11:55 pm

Re: Comparing Balanced Funds

Post by lack_ey » Fri Nov 25, 2016 4:02 pm

First of all, why are you looking at returns after taxes? You generally don't want any balanced funds in taxable accounts, especially not active funds.

For reference:
Image
http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

I didn't do anything more than just a superficial look, but yeah, these are all balanced funds with somewhere around 60% in stocks, but they're not exactly operating in the same playing field and you can attribute performance differences to a number of things, including
  • Obviously the ER difference made an impact, though note that the exact figures looking back in time may be a little different from today's listed ER
  • Dodge and Cox Balanced had a higher stock allocation than the other two funds, which particularly helped in the last five years because stocks did very well. It clearly took the most risk of the three funds and was hurt the most during the financial crisis, though it was riskier in bonds too.
  • Dodge and Cox Balanced was hurt hurt by its higher tax cost, which in part is caused by the stock tilting to value and dividend payers, and the bond tilting to corporates. So this is a drag in a taxable account, even if it's not turning over its equities all that much.
  • Vanguard Balanced is all US stock, which helped over the ten-year period for sure. The STAR fund has a nontrivial ex-US stock allocation, and the Dodge and Cox fund has a little bit. You can't exactly count on continued US stock outperformance over every period.
  • Dodge and Cox Balanced being a little bit value biased over the period should have hurt a bit on average, as growth stocks outperformed. STAR was just a bit growth biased, which should have helped. Historically, large cap value has had a little of an edge over large cap growth, but that's not how things played out this time.
I would caution against overinterpreting the results of any given period and being confident in ascribing causality. While a lower ER does help, and a more passive approach is superior on average, these may not be the greatest influences on performance differences over these years or any others.

mcraepat9
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Joined: Thu Jul 16, 2015 11:46 am

Re: Comparing Balanced Funds

Post by mcraepat9 » Fri Nov 25, 2016 4:10 pm

Saphomd wrote:Greetings:

So I compared the following three balanced funds:

Vanguard Balanced Index Fund (VBIAX)-------ER 0.08%
Vanguard Star (VGSTX)..........0.34%
Dodge and Cox Balanced (DODBX)----------0.53%


The average total annual return after taxes and sale of fund shares:

VBIAX 1 year 6.56%....3year 5.94%....5 year 8.54%....10 year 5.19%
VGSTX 6.90.............4.86.............7.96...............4.57
DODBX 7.80.............5.61.............10.55..............4.27



So VBIAX has higher returns due mainly to its lower ER and the fact that its an Index fund? ( Compared to the Star fund which is active fund and higher ER?)Actually I would guess the most significant part of the higher returns are due to the fact that (i) VBIAX only invests in the US stock market, whereas both VGSTX and DODBX contain foreign stocks (US has outperformed foreign during these periods) and (ii) both VGSTX and DODBX have tilts toward certain stocks (value/growth). Comparing these 3 funds against each other because they are all "balanced funds" doesn't make much sense. You always need to focus on what these funds hold.

Then again, Dodge and Cox is an active fund with a higher ER but does well compared to the other two.

Or perhaps I should have compared all three against the benchmark? :confusedChecking each individual fund's benchmark will give you an indication of what they are trying to measure themselves against.
I think you need to decide what you are trying to accomplish first (i.e. active exposure to US large cap stocks; low cost exposure to US bond market) and then find balanced funds that meet your needs. I would also caution that often times balanced funds are not the right approach to achieve your goals, particularly in taxable accounts. They are often the jack of all trades but master of none. By holding 2 separate funds, you can get exactly what you want without the hassle and tax issues of a balanced fund.
Amateur investors are not cool-headed logicians.

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