With so much attention focused on the billions and billions of dollars flowing into passively managed index ETFs, you might be surprised to find that actively managed mutual funds still exist! But they do, although the reasons that this segment of the market is shrinking are easy to understand.
For most funds, the cost of active management continues to be prohibitive. The average expense ratio for an actively management large cap mutual fund is around 1.25%. The average for an S&P 500 index fund? About 0.15%. That difference of over 100 basis points annually combined with the difficulty of trying to consistently pick outperformers over time has proven a steep hill to climb. Roughly 80% of active funds fail to match their benchmarks over time.
But not all active funds should be kicked to the curb. Some funds have great long-term track records, low expenses and smartly managed portfolios. At Vanguard, one of their oldest funds is also one of their best.
The Vanguard Wellesley Income Fund (MUTF:VWINX) is a nearly 50-year old fund that maintains a balance of around 60-65% bonds and 35-40% stocks. The mix of investment grade bonds and large-cap stocks makes it an ideal choice for retirees, those planning for retirement or new investors right out of the gate.
The fund's ability to limit shareholder risk while delivering above average returns in the process has been perhaps its greatest asset. There are a couple of graphics that I like to use when detailing Wellesley's historical returns and risk.
VWINX Total Return Price data by YCharts
The goal of this chart isn't to point out that the fund has underperformed the S&P 500 over time (nor should it be expected to given the unfair comparison of a 100% stock index against a balanced fund). It's to illustrate how the fund
