An Empirical Examination Of Balanced Mutual Funds

Document Type

Article

Publication Date

12-1-2026

School

Finance

Abstract

Balanced mutual funds are hybrid funds that invest in a portfolio of stocks and bonds. Balanced funds have a specific allocation of stocks and bonds. Fund managers will try to stick to this allocation. These funds have also been offered as the default investment choices in several different pensions, 401(k), 403(b), and IRA plans. Therefore, an analysis of these funds is extremely important. This study looks at the absolute and risk-adjusted performance of 1,266 balanced mutual funds in four different categories (30% to 50% equity allocation, 50% to 70% equity allocation, 70% to 85% equity allocation, and >85% equity allocation) from January 1990 through December 2021. It compares them to the passively managed Vanguard S&P 500 fund, Vanguard total bond fund, and three different index fund portfolios. Balanced mutual funds have underperformed index funds with lower risk-adjusted performance. Balanced mutual funds have also generated lower returns and less wealth compared to index funds. The five-factor alpha is also significantly negative for all fund categories, indicating that these funds have not created any value for their investors. Overall, balanced mutual funds have underperformed plain vanilla index funds, and investors would have been better off constructing portfolios using index funds based on their risk tolerance.

Publication Title

Journal of Retirement

Volume

13

Issue

3

First Page

96

Last Page

106

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