An Excellent Vanguard Allocation Fund

Gretchen Rupp: Vanguard Balanced Index is a straightforward, passively managed allocation fund. It's delivered superior results with relatively low volatility and earns a Morningstar Analyst Rating of Gold.

The fund maintains a mix of 60% stocks and 40% bonds with regular rebalancing to ensure the mix remains constant. The equity sleeve follows the CRSP U.S. Total Stock Market Index, which tracks nearly every stock in the U.S. market. It replicates a purely domestic stock index, so it holds no foreign equities. The index is market-cap weighted which means that giant-cap names such as Apple, Microsoft, Exxon, and Amazon hold the highest weighting within the stock portion.

The fixed-income side of the portfolio is also an entirely passive approach, tracking the Bloomberg Barclays U.S. Aggregate Float Adjusted Bond Index. Vanguard carefully replicates the index's key characteristics, such as duration and credit quality, which excludes high-yield securities. This fund enjoys an enormous cost advantage over alternative allocation funds. 

The Admiral share class, which has a minimum investment of $10,000, charges 8 basis points. This cost advantage has helped this fund beat more than 80% of category peers during the 10 years through November 2016. Plus, the fund's return volatility, as measured by its standard deviation, was lower than 85% of peers over the same time period. 

Finally, the management team here makes efficient use of steady inflows to rebalance, aiding tax efficient trading; the fund hasn't issued a capital gain for more than 10 years, which is unusual for the category. This passive fund remains an excellent choice for investors.