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What do you think of these balanced funds?
Old 05-04-2008, 10:36 PM   #1
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What do you think of these balanced funds?

All six looked good but I wanted to ask you guys. I would like to buy all six of them. Does this sound wise? All of these funds fit my risk level.

T. Rowe Price Capital Appreciation PRWCX

Oakmark Equity & Income I OAKBX

Leuthold Asset Allocation LAALX

GAMCO Westwood Balanced AAA WEBAX

Vanguard Wellington VWELX

Vanguard STAR VGSTX
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Old 05-04-2008, 10:48 PM   #2
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I do not believe it is wise to purchase a balanced fund much less six of them. You have no control over your asset allocation, tax-efficiency, tax-loss-harvesting, and rebalancing with a balanced fund. I think it is better to purchase index funds in the separate asset classes because you can select the best locations for particular asset classes. For example, it is a bad idea to have a balanced fund or a target retirement fund in a taxable account.

I do realize that some folks do not want to think about portfolio management or do not have enough funds to buy the separate asset classes.
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Old 05-04-2008, 10:53 PM   #3
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This is all taxable but I am in the 15% bracket. Would you like something like this better?

25% -- Vanguard Total Market
25% -- Vanguard Total International
25% -- Vanguard GNMA
25% -- Vanguard TIPs

The only thing that worries me is the risk grade on these four is about 77 averaged together and on the six balanced fund it is about 53 when they are averaged together. I like the lower risk for around the same return.

RiskGrades Measure - What is a RiskGrade Measure?
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Old 05-04-2008, 11:07 PM   #4
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If this is all taxable, I think you should not have GNMA nor TIPS in taxable. Good funds for taxable are VTSMX (VTI) and VFWIX (VEU). Use your Roth IRA, traditional IRA or 401(k) for the GNMA and TIPS or other bond funds.
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Old 05-04-2008, 11:10 PM   #5
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I'd be all over the total market and total international in a taxable but why not put the TIPS and GNMA in an IRA or other tax deferred plan? Also do you want a 50:50 equity:bonds asset allocation?

DD
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Old 05-04-2008, 11:13 PM   #6
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I agree with your point but 99% of my portfolio is taxable and now I am not working so I can not build my non taxable. My roth is only about 1% of the portfolio. I was always a saver but did in not save too much in non taxable accounts. When I was younger 59 and a 1/2 looked to be a long way aways and I was scared to lock up the money. That was a mistake I made. So now I must work with what I got and make the best of it. As far as equities I can go 50% to 60% any more and I don't sleep to well at night.
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Old 05-04-2008, 11:29 PM   #7
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Good funds for taxable are VTSMX (VTI) and VFWIX (VEU). Use your Roth IRA, traditional IRA or 401(k) for the GNMA and TIPS or other bond funds.
You gave me similar advice in my thread about investing taxable funds (MM, CDs, etc.). Why select the Total Market Stock (VTSMX) fund instead of some combination of the Growth Index (VIGRX), Mid-Cap Growth Index (VMGIX), and Small-Cap Growth Index (VISGX) funds? Better performer? Simpler?

In my case, I was trying to build up the worth of our taxable assets while limiting the amount of dividends and capital gains until retirement (6 years from now). The three individual index funds pay far less dividends than does the Total Market Stock fund.
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Old 05-04-2008, 11:50 PM   #8
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I agree with your point but 99% of my portfolio is taxable and now I am not working so I can not build my non taxable. My roth is only about 1% of the portfolio. I was always a saver but did in not save too much in non taxable accounts. When I was younger 59 and a 1/2 looked to be a long way aways and I was scared to lock up the money. That was a mistake I made. So now I must work with what I got and make the best of it. As far as equities I can go 50% to 60% any more and I don't sleep to well at night.
Ahh. As always the devil is in the details. Hopefully someone who knows more about bonds can help you as I've never explored that option in taxable. What state do you live in as that will definitely play into your options?

DD
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Old 05-05-2008, 12:39 AM   #9
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You gave me similar advice in my thread about investing taxable funds (MM, CDs, etc.). Why select the Total Market Stock (VTSMX) fund instead of some combination of the Growth Index (VIGRX), Mid-Cap Growth Index (VMGIX), and Small-Cap Growth Index (VISGX) funds? Better performer? Simpler?

In my case, I was trying to build up the worth of our taxable assets while limiting the amount of dividends and capital gains until retirement (6 years from now). The three individual index funds pay far less dividends than does the Total Market Stock fund.
Studies show that growth funds underperform value funds in the long term. Therefore in the spectrum of value, blend, growth one should underweight growth and overweight value. To get a handle on these studies, you will have to read the info in the links and books I gave you previously.
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Old 05-05-2008, 12:47 AM   #10
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I would usually agree that having balanced funds in a taxable account is not best for tax purposes. BUT, in your case, since you have no tax-deferred account which you can load with bonds, since you are in the 15% tax bracket and since long term capital gain taxes are equally low right now, I feel like it is probably OK to go with a good balanced fund if such is your choice. I have held PRWCX and VWELX (in IRAs) for many years. I am happy with both and think they are solid investments.

But if optimizing your tax efficiency is paramount (and it would be especially if you end up in a higher tax bracket), then you could go with a mixture of a total market fund + a total international fund for the equity portion of your portolio and you could look into an intermediate municipal bond fund for the income portion of your portfolio. However, once again, because you are in such a low tax bracket, it might still make more sense to invest in taxable bonds rather than in munis. You'll have to figure out which option yields higher after tax returns given your specific situation.
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Old 05-05-2008, 08:02 AM   #11
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Originally Posted by LOL! View Post
I do not believe it is wise to purchase a balanced fund much less six of them. You have no control over your asset allocation, tax-efficiency, tax-loss-harvesting, and rebalancing with a balanced fund. I think it is better to purchase index funds in the separate asset classes because you can select the best locations for particular asset classes. For example, it is a bad idea to have a balanced fund or a target retirement fund in a taxable account.

I do realize that some folks do not want to think about portfolio management or do not have enough funds to buy the separate asset classes.
It depends, balance funds are good for mid-term investments (6-14 years),
since they have never lost money over a 7-8 year period. And if you ER
early and are using money from your taxable account till you reach 59.5,
then a balance fund in a taxable account is a good idea, especially since
they throw off dividends/LT gains that get preferential tax treatment.
I would not invest in any funds that throw off a lot of ST gains in a
taxable account.
TJ
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Old 05-05-2008, 08:36 AM   #12
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I think one only needs two balanced funds at most, balanced domestic, and balanced international if you want that.

"Slicing and dicing" balanced funds, what's the point?
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Old 05-05-2008, 09:06 AM   #13
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One of those funds will suffice - my pick will be Vanguard Wellington because it has a long history and the expense ratio is reasonable.
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Old 05-05-2008, 09:30 AM   #14
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Ahh. As always the devil is in the details. Hopefully someone who knows more about bonds can help you as I've never explored that option in taxable. What state do you live in as that will definitely play into your options?

DD

I live in Missouri.
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Old 05-05-2008, 09:36 AM   #15
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OAKBX is a fantastic fund, but is closed to new investors, unfortunately. So, you can take that one out of consideration unless you currently own some already.
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Old 05-05-2008, 09:39 AM   #16
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One of those funds will suffice - my pick will be Vanguard Wellington because it has a long history and the expense ratio is reasonable.
I use to think this way until last year. I had all my portfolio in the Dodge and Cox Balanced fund and it did good for many years but last year I only made about 1.7%. I said after that I would not be in just one fund again. I like the Wellington but don't want to but all my eggs in one basket.
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Old 05-05-2008, 09:41 AM   #17
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OAKBX is a fantastic fund, but is closed to new investors, unfortunately. So, you can take that one out of consideration unless you currently own some already.
I think you CAN still buy it - but you have to buy it directly through Oakmark.

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Old 05-05-2008, 09:42 AM   #18
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OAKBX is a fantastic fund, but is closed to new investors, unfortunately. So, you can take that one out of consideration unless you currently own some already.
It is still open if you buy it right from the fund family.
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Old 05-05-2008, 09:43 AM   #19
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Good call, my mistake.
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Old 05-05-2008, 09:12 PM   #20
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I like OAKBX, though it's not a great AA fit for slice-and dice protfolios. I stretch it into the large cap growth allocation because its one of the few good funds in DW's 401k. Its variance was very low over the past years, hopefully they can keep that up.

Dan
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