Let’s face it. The talking heads of market media can’t let the idea go. Even though a simple 60/40 mixture of stocks and bonds has redeemed itself, they’re jabbering about today as a:
— “stock picker’s market,”
— a time to (add/reduce) stocks,
— a time to (add/reduce) bonds,
— a time for “quality earnings,”
— or a time for “dividends.”
They gotta do what they gotta do.
In case you haven’t already learned, what they gotta do is convince you and me that today is a good time to make a change and buy (or sell) this or buy (or sell) that. Even better if we sell one thing to buy another.
What the evidence shows.
You don’t have to take my word about the resurrection of balanced funds. As always, I’ve brought actual evidence.
Let’s start with the performance of the earliest balanced index mutual fund. Vanguard Balanced Index Fund (VBINX) was established back in truly ancient times. That would be 1992 in breathless media time. The fund now has $59 billion in assets under management. It is so old that its first performance figures were filed before the first exchange-traded fund was introduced in 1993.
The addicts of NEW would call it long-in-the-tooth, tiresome, boring, unchanging, unresponsive, behind the times, etc.
As a promulgator of unrelenting investment sloth, I’m OK with that. You should be too, unless you’re happy to accept meaningless excitement in lieu of cash for food and shelter.
The 60/40, portfolio idea fell from grace in a single year, 2022. That’s when both stock and bond prices fell. That isn’t supposed to happen. But it did. According to investment writer Allan Roth the bond crash was worse than the stock market crash of the Great Depression.
You can see the impact by visiting the Morningstar.com website and checking the year-by-year performance figures over the last 10 years.
The record shows that VBINX did better than most managed balanced funds in each year from 2015 to 2021. Even in its worst years, 2017 and 2021, it did better than half of its professionally managed competition.
But it tanked in 2022.
It returned a loss of 16.97 percent, while the average managed fund returned a smaller loss, 13.64 percent. Vanguard Balanced Index mutual fund had been outdone by 81 percent of the balanced funds in operation that year.
It doesn’t get a lot worse than that.
Fortunately, that miserable year quickly disappears as you examine the longer-term record. Now that 2023 and 2024 are over, the three-year record shows a percentile ranking in the 29th percentile, a five-year ranking in the 21stpercentile, a 10-year ranking in the 16th percentile and a 15-year ranking in the 13th percentile. (See table below.)
More important, these figures understate the ranking. They measure surviving funds, ignoring the multitudes of managed funds that are quietly put to sleep every year. The actual performance of a Vanguard Balanced Index mutual fund is much better because more funds start each period than finish. But you and I make our choices from all the starting funds, not just the ones destined to finish.
You can understand this by scoring a tough marathon. Imagine a run with 1,000 entrants and only 300 finishers. What do we know about the runner who finished 20th?
No medals. No trophies. No recognition. But that runner was in the top 2 percent of all entrants.
That’s rather impressive. Since being “top quintile” (top 20 percent) is the long-term Holy Grail of investment managers, let’s see how survivorship affects the scoring of Vanguard Balanced Index mutual fund. I called Morningstar and asked their researchers for performance figures beyond the 15 years shown on their website, going out to 30 years. You can see the results below.
| Long Term Performance of Vanguard Balanced Index Fund | |
| This table shows the fund’s rank against all comparable surviving funds over time periods of 1 to 30 years, all ending 12/31/2024. | |
| Time Period | Rank among Survivors |
| 1 | 19th percentile |
| 3 | 30th |
| 5 | 23rd |
| 10 | 16th |
| 15 | 15th |
| 20 | 19th |
| 25 | 35th |
| 30 | 29th |
| Source: Morningstar | |
The Morningstar records show that VBINX kept chugging along, beating a healthy majority of surviving funds in every period. It was always an index fund so the only tool it had to create this record was low expenses. They are now down to 0.18 percent a year. The fund maintained a steady 60/40 balance of domestic stocks and bonds. It never varied. It didn’t zig while others zagged. It didn’t go to cash at imagined market tops. It didn’t load up on The Next Big Thing.
Do we know how many comparable funds started each period? The Standard and Poor’s SPIVA reports, which I’ve mentioned in many columns, don’t provide survivorship figures for balanced funds. But their survivorship reports on domestic equity and domestic bond funds show that staying alive in the fund business isn’t easy.
Over a 20-year period, for instance, survivorship ranges are about 25 percent for major domestic equity fund categories. Domestic fixed-income funds do a bit better with 15-year survivorship of nearly 50 percent. The other thing we know is that fund survivorship doesn’t improve with age.
It’s not a reach to say that the long-term performance of this simple, low-cost index fund has been well inside the goal of top quintile performance. If, for instance, the 25-year survivorship performance is adjusted by using the 50 percent survivorship figure for fixed-income funds, the actual performance of the fund against all starting funds would be in the top 17.5 percent. If the 30-year performance is adjusted by assuming the survivorship of domestic equity funds, the actual performance of the fund against all starting funds would be in the top 7.5 percent.
Is there a message here?
Of course. And it’s the same message the data has reinforced year after year and decade after decade. Low-cost index investing in an unchanging and simple asset allocation is the way to get superior performance, not average performance. Just invest and do nothing.
It also leaves you free to exercise your time and talent in how you spend your money, an activity that is more likely to be rewarding.
Related columns:
Scott Burns columns that mention SPIVA: https://scottburns.com/?s=SPIVA
Scott Burns, “How I Became a Couch Potato Investor,” 9/25/2018: https://scottburns.com/how-i-became-a-couch-potato-investor/
Scott Burns, “How to Build the Basic Couch Potato Portfolio Anywhere for Next to Nothing,” 9/12/2018: https://scottburns.com/how-to-build-the-basic-couch-potato-portfolio-anywhere-for-next-to-nothing/
Scott Burns, “The Lessons of Couch Potato Investing,” 11/27/2016: https://scottburns.com/the-lessons-of-couch-potato-investing/
Sources and References:
Yes, 60/40 beat hedge funds, too:
Morningstar performance figures, for quarter end:
https://www.morningstar.com/funds/xnas/vbinx/performance
Allan Roth, “By One Measure, 20-22 Bond Crash Is Worse Than Stocks During the Great Depression,” 10/31/2024: https://www.barrons.com/advisor/articles/by-one-measure-2022-bond-crash-is-worse-than-stocks-during-the-great-depression-51667243626
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns, A scene from walking the Camino de Santiago
(c) Scott Burns, 2025
2 thoughts on “Critics Abound, But Traditional Balance Triumphs”
Comments are closed.
A comment and a question. First the comment, “if you can fog a mirror….” is alive and well at least as a corollary. If you use a 50/50 mix of VWELX and VWINX rebalanced annually, you beat VBINX over 30,25, & 10 yr periods, and be very close over nearly all other periods. It represents a higher annual fee, only 53% stocks and a much lower STD. Data is from Yahoo, excel spreadsheet is available, but I doubt it would fit in this comment block. Also, VWELX (65/35) beats or equals VBINX over all periods, with the same STD.
Now the question. Having followed your columns since I moved to Colorado Springs in 1992, and being 7 years your junior, what happens to this fantastic collection of financial wisdom when you are gone? I have sent your small change millionaire column (not available on your website!) to my children (57,55,55) for them to apply towards my grandchildren, and other columns on cup of life, hedonic tilt, worth of a year of life, etc. These are timeless philosophical views on finance that I want my last son (33) to appreciate and refer to.
Thanks, and stay healthy. Lynn P Beaulieu, MD
Hi Lynn,
I’m not surprised at the performance of Wellington (VWELX)/Wellesley (VWINX) performance results. Both great low cost funds and I mentioned getting a 50/50 couchpotato distribution by combining them in columns some years ago. Nor am I surprised that VWELX beats or equals VBINX since it has a higher equity component, but I am surprised that the standard deviation is the same. For me, the main thrust must always be toward simplicity and low costs, otherwise the temptation to tweak can seduce and ruin the benefits of the couch potato approach.
The possibility that I am not immortal was just a concept until 2024. But last year my wife and I were surrounded by others having major health issues and more than a few deaths. And at 84 (me) and 82 (my wife), we’re often the oldest people in the room unless we’re visiting a nursing home… So I’m taking steps to adapt.
Earlier this year I engaged a website design firm to help me with the operation and development of scottburns.com. (I could do it all back in 1996 with Frontpage software. But today even WordPress is complicated.) One of the first actions will be to create a subscription form so readers can be notified of new columns.
A publisher contacted me a few weeks ago and inquired about my doing a book. I’ve proposed a very short book for late this year. It will cover everything you mentioned.
I’ve also got more gritty problems to solve created by having a few years of columns saved in formats no longer recognized by the major word processing programs. That will get done within the limitations of time and money.
Thank you, so much, for your long term interest and trust. Knowing that I am useful to others is a big part of why I continue to write.
Scott