Why Invest in Conservative Mutual Funds?
Conservative investments have low relative risk, which means they will generally have low exposure to stocks. Conservative allocation mutual funds typically hold about 20% to 50% stocks and 50% to 80% bonds. Here some of the main reasons investors buy conservative mutual funds:
Investing that is low-risk: The very nature of conservative investing is keeping market risk and volatility low while still getting average returns that keep up with inflation, or beat it by a small margin, over time. Retirement income: These funds are often low-risk with a blend of stocks that are high-quality and pay dividends. That makes for a solid mix of holdings that produce income that retirees need without too much risk of losing their primary funds. Core holdings: When building a portfolio, a core and satellite structure is smart. Just as it sounds, an investor will choose one core holding, which will receive the highest amount of funds, and several smaller holdings, which will receive lower funding amounts. Many people who invest money use index funds, such as an S&P 500 Index fund, but funds that are low-risk can be used as core holdings for people who want to invest their money with a lower risk than a fund that invests 100% of its portfolio in stocks. People just starting to invest money: These investors may want to get started by investing in funds that are low-risk. That way, they won’t see big declines during bear markets, and they can get a varied allocation in just one mutual fund without investing a large sum of money.
How We Chose the Best Vanguard Funds That Are Low-Risk
When choosing the best conservative funds, we looked for these aspects:
Allocation: To be defined as conservative, the stock allocation should be 20% to 50%, and the bond allocation should be 50% to 80%.High-quality stocks paying dividends: The stock allocation in these funds should focus mostly on large company U.S. stocks that pay dividends. That provides not only more stability than aggressive growth stocks, but also an income element that some conservative investors are looking for.Low expenses: It’s always a good idea to keep costs low, but it means even more with conservative funds. Average returns over the long term for these funds are lower than those of aggressive funds, and people who invest should do their best to keep more money working for them rather than paying high fees.
3 Best Vanguard Funds for Conservative Investors
Keeping our criteria in mind, here are three of the best Vanguard conservative funds:
The Bottom Line
The best funds for people who want their money to be safe will have a higher amount of funds put into bonds than into stocks. Low expenses can be another plus with this type of investing. People who buy conservative funds are looking for income and wanting to keep market risk lower than if they were to buy funds with higher amounts of stocks.
