Fund Spy

Vanguard's Two-Fund Portfolio Just Had Its Best Decade

Jason Kephart, CFA

If it feels like diversifying beyond a simple moderate portfolio that owns one U.S. stock index fund and one U.S. bond index fund has been a fool's errand over the past decade, there's good reason for that.  Vanguard Balanced Index (VBIAX) had its best decade of risk-adjusted returns since it launched in 1992, and it invests in just two broad U.S. index funds. To be fair, seven of the 153 funds in the allocation--50% to 70% equity Morningstar Category had as good or slightly better risk-adjusted returns over the decade, so there was some room for improvement, but it has still been a fantastic time for simplicity.

Vanguard Balanced Index is a moderate-allocation fund that earns a Morningstar Analyst Rating of Gold. It uses 60% of its assets to track the same index that underlies Gold-rated  Vanguard Total Stock Market Index (VTSAX) and 40% of its assets to track the same index underlying Silver-rated  Vanguard Total Bond Market Index (VBTLX).

Jason Kephart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.