Asset allocation mutual funds have gained popularity among investors as these pooled investments offer a simple way to access multiple asset classes within a single, professionally managed fund. A wide array of asset allocation funds exist, ranging from ultra-conservative to highly aggressive, and each can be used as a single holding or partial allocation for individual investors. Conservative allocation funds consist of equity and debt securities, as well as cash and cash equivalents, with a focus on the preservation of principal capital through larger debt and cash investments. Investors with concerns about market volatility, or those who wish to generate income from all or part of their portfolios, can use conservative allocation funds to meet investment objectives with ease.
While conservative allocation mutual funds offer a respite from violent fluctuations in equity-heavy investments, they’re not suitable for every investor. They hold a heavier concentration of total assets in bonds and cash, which lessens the opportunity for investors to achieve capital appreciation over the long run. Additionally, some bond holdings and cash investments are hard-pressed to keep up with rising inflation rates, making returns on conservative allocation funds minimal at times.
However, investors interested in maintaining an investment portfolio’s principal balance with the potential for generating income through dividends and interest may find conservative allocation funds most appropriate as a part of or a single holding within an investment portfolio. A number of conservative asset allocation funds are available to investors through well-known mutual fund providers, including Vanguard, American Funds, T. Rowe Price and Thrivent, whose funds are featured here.
Vanguard Tax-Managed Balanced Fund (VTMFX)
The Vanguard Tax-Managed Balanced Fund is a conservative allocation mutual fund made available to investors through the Vanguard Group. Established in 1994, this mutual fund seeks to provide investors with tax-efficient returns generated by federally tax-exempt income, long-term capital appreciation and current taxable income in a modest amount. Typically, the fund’s $8.0 billion in assets are invested equally between the mid- and large-capitalization segments of the U.S. stock market and federally tax-exempt municipal bonds.
The mutual fund has achieved a 7.60% average annual return rate since inception, and its expense ratio of 0.09% as of Aug. 12, 2022. A minimum initial investment of $10,000 is required from investors. Top holdings within the fund include Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOGL).
American Funds Tax-Advantaged Income Fund (TAIAX)
The American Funds Tax-Advantaged Income Fund is offered to investors through the American Funds family of mutual funds and was established in 2012. This conservative allocation fund aims to help investors grow their assets and also gain some tax-exempt income. The mutual fund’s investment mix consists of several American Funds offerings with various combinations and weightings, the majority of which seek to generate income from their underlying investments. Fund managers with the American Funds Tax-Advantaged Income Fund focus investment selections on dividend-paying stocks by including growth and income funds, equity income funds, balanced funds, and bond funds.
The mutual fund has generated 6.47% average ten year annual return since inception and has an expense ratio of 0.64%. The fund requires an initial investment of $250. Top holdings within the mutual fund include the Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund, the Capital World Growth and Income Fund, and the Washington Mutual Investors Fund.
T. Rowe Price Personal Strategy Income Fund (PRSIX)
The T. Rowe Price Personal Strategy Income Fund was established in 1994. The fund management team seeks to provide investors with the highest total return over time by focusing on investment selections on income first and growth of capital second. Approximately 40% of the fund’s $2.25 billion assets are invested in stocks, with the remaining dispersed among bonds, money market securities, and cash, as of Jul. 31, 2022. In some cases, the fund may adjust the weight of a specific asset class based on current market conditions or outlook.
The T. Rowe Price Personal Strategy Income Fund has achieved an average annual return rate of 6.95% since inception through Jun. 30, 2022, and has an expense ratio of 0.60%, as of Jul. 31, 2022. The fund requires a minimum initial investment of $2,500. Top companies among the fund’s holdings include Alphabet, Amazon.com and Microsoft.
Thrivent Diversified Income Plus Fund (THYFX)
The Thrivent Diversified Income Plus Fund is a conservative allocation mutual fund established in 1997 and made available to investors through the Thrivent investment group. The mutual fund seeks to provide investors with income while maintaining a capital appreciation for the long term. The fund’s $901.10 million in assets are invested in a combination of equity securities and debt securities, with the equity portion, focused in common stock, preferred stock, and convertible stock. The debt securities held within the fund can be of any credit quality and any length maturity and may include high-risk bonds, notes, debentures or other debt obligations. Fund managers may also invest in exchange-traded fund alternatives at their discretion.
Since its inception, the Thrivent Diversified Income Plus Fund has generated an average annualized 10-year return of 4.82% and has an expense ratio of 0.71%, as of Jul. 29, 2022. The fund requires a minimum initial investment of $2,000. Top holdings within the mutual fund include the Federal National Mortgage Association Conventional 30-Year Pass-Through and the Thrivent Core Emerging Markets Debt Fund.