Author Topic: Index Fund vs Balanced Fund  (Read 6564 times)

eaw13749

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Index Fund vs Balanced Fund
« on: February 23, 2014, 04:59:51 PM »
As a new reader, I have a beginner's question.  I have been reading about index funds and how that's the proper way to invest safely in the stock market.  However, is this basically the same vehicle as a "balanced" mutual fund?  Through my employer, they offer both index funds and mutual funds (balanced and growth funds).  I have all my personal funds (excluding emergency fund) in a balanced mutual fund.  Are these two funds basically the same and if not, should i move funds into an index fund?

Any thoughts would be appreciated.

FIPurpose

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Re: Index Fund vs Balanced Fund
« Reply #1 on: February 23, 2014, 05:08:28 PM »
They are not the same. Balanced funds are typically a blend of Bonds and Equities. Typically Index markets are only one or the other. You'll find that most people here are comfortable with figuring out their own ratio of stocks:bonds.

A balanced fund is still a mutual fund, meaning you are still paying someone to choose stocks and bonds. The preference of myself and others is to stick to index funds.

But what is the expense ratio difference between the balanced fund and the available index funds that are available? That is where you will see the major difference!

eaw13749

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Re: Index Fund vs Balanced Fund
« Reply #2 on: February 23, 2014, 05:13:36 PM »
Wow!  I didn't consider the cost factor. I thought the costs were the same between the two funds.  There is no fee to purchase or sell shares in the balanced funds because i'm an employee.  I need to check the basis service fee.  I missed that step. Thanks!

eaw13749

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Re: Index Fund vs Balanced Fund
« Reply #3 on: February 24, 2014, 05:03:34 AM »
Can you please explain about the mix of stocks to bonds?  What formula would someone close to retirement who wants to be somewhat conservative?  I recently closed a growth fund since I am 5-6 years out from retirement.  At age 51, i don't want to gamble with what i have been able to accumulate.  Thanks!

FIPurpose

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Re: Index Fund vs Balanced Fund
« Reply #4 on: February 24, 2014, 10:30:19 AM »
There are a lot of differing opinions on what you should have as your ratio. And you can probably find a number of threads under "Investor Alley" on the subject. The most common one I've seen is 120 - age in stocks. So if you're 50, a 70/30 ratio is probably a good mix. Though after you read around enough, you find people who hold 100% stocks probably all the way down to 50/50. It all depends on your risk tolerance.

Personally I hold 75/25, and I plan to hold that ratio the rest of my life.

huadpe

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Re: Index Fund vs Balanced Fund
« Reply #5 on: February 24, 2014, 11:53:23 AM »
If you want a "balanced" fund pre-made, you can do that with a single index fund.  Vanguard sells a few of these at 80/20, 60/40, 40/60, and 20/80 bonds/stocks respectively.

https://investor.vanguard.com/mutual-funds/lifestrategy/#/  The expense ratios on those are quite low, 0.14%-0.17%, with the more stock ones being a teensy bit pricier.