Why We Upgraded Vanguard’s 60/40 Index Fund

Key Morningstar Metrics for Vanguard Balanced Index VBAIX

• Morningstar Medalist Rating
  : Gold
• Process Pillar
  : High
• People Pillar
  : Above Average
• Parent Pillar
  : High

Vanguard Balanced Index is a top US balanced fund option that can serve as an investor’s whole portfolio or be the anchor for one that’s more adventurous. Vanguard’s research-driven portfolio management team continues to make meaningful changes on the margin, supporting an upgrade to the Process rating to High from Above Average.

This 60/40 strategy pairs broad exposure to the US stock market with a portfolio of investment-grade US bonds, aiming to deliver a level of risk that investors can tolerate over the long term. Vanguard’s multi-asset team has found ways to improve on the straightforward 60% US stock/40% US bond portfolio without straying from its core premise. Michael Roach, head of multi-asset portfolio management within Vanguard’s investment strategy group, has led efforts to refine the fund’s trading and portfolio rebalancing. Those improvements have recently paid off: The fund’s institutional shares have outperformed a monthly rebalanced 60/40 portfolio of Vanguard Morningstar Total Stock Market Index and Vanguard Total Bond Market Index over the trailing one- and three- year periods ended September 2026.

That said, its success also partly rests on how the two asset classes complement each other, with bonds typically cushioning losses when stocks struggle. That relationship broke down in 2022, when soaring inflation and rapidly rising interest rates hammered both stocks and bonds. The fund lost 16.9%, its worst calendar-year return since the 2008 global financial crisis. Its bond portfolio also proved more interest rate-sensitive than those of many actively managed peers because it tracks the broad US bond market. As a result, the fund trailed nearly 80% of its moderate-allocation Morningstar Category peers that year.

Bonds have faced renewed pressure in 2026 as inflation concerns have pushed interest rates higher. But higher starting yields have helped cushion the blow: The bond portfolio lost just 2.7% through September 2026. Meanwhile, strong stock market returns helped the overall fund gain 6.4%, outperforming most peers. The results highlight both sides of the strategy; bonds can struggle when interest rates rise sharply, but a diversified portfolio can still deliver solid returns when stocks perform well.

For investors seeking a 60/40 portfolio, this is one of the best on the market. The experienced multi-asset team continues to sharpen a simple design with changes like threshold rebalancing, adding value for investors. The strong foundation, paired with these thoughtful changes, is offered at a rock-bottom price, making it hard to beat over a full market cycle.

Vanguard Balanced Index: Performance Highlights

This portfolio is built around the assumption that when stocks struggle, bonds will provide a cushion because of their low correlation. While this has held over the long term, periods like 2022—where rising inflation and interest rates hurt both stocks and bonds—are a challenge. The fund’s institutional shares lost 16.9%, underperforming nearly 80.0% of category peers that year. That said, this approach is built around a long-term investment horizon. Over the trailing 10-year period ended September 2026, the strategy gained 9.4% annualized, placing it in the top quartile of the category peer group and 50 basis points ahead of its Morningstar US Moderate Target Allocation Index category benchmark. On a volatility-adjusted basis (as measured by the Sharpe ratio), the fund outpaced or matched almost 80% of category constituents and beat the category index over the same time frame.

Over the shorter term, the fund gained 15% annualized over the trailing three years ended September 2026, outpacing the average category rival by 196 basis points. During this time, the fund’s new rebalancing strategy went into place. This improvement has delivered roughly 20 basis points in value versus a monthly rebalanced 60/40 portfolio of Vanguard Morningstar Total Stock Market Index and Vanguard Total Bond Market Index.