If 2025 taught us anything, it is that portfolio diversification remains essential. International stocks resurged to beat US stocks, while core bonds delivered their strongest year since 2020. Capturing these rotations can be difficult, though. For those who prefer to leave the asset allocation to the pros, balanced funds provide a proven way to stay invested through the noise.
What Is a Balanced Fund?
Balanced funds make portfolio diversification easy for investors by sticking close to a classic mix of 60% stocks and 40% bonds, better known as the classic 60/40 portfolio. Investors can find these funds in the moderate-allocation or global moderate-allocation Morningstar Categories, depending on the portfolios’ exposure to international markets.
The global moderate-allocation category was created in May 2025 to better delineate between balanced funds that have a strong home bias toward US stocks and those that venture more internationally. To land in the global moderate-allocation category, a fund must have more than 25% of its portfolio invested outside the US consistently.
A balanced fund’s goal is to provide a smoother ride than an all-stock portfolio by including bonds, which offer better returns than cash and are less likely to lose money than stocks. Even when stocks and bonds both lost money in 2022 (which had not been seen since the 1960s), investors in balanced funds were still better off than those investing 100% in stocks.
Over the long term, balanced portfolios have provided a meet-in-the-middle solution for investors who can’t stomach the volatility of only owning stocks but require higher returns than fixed income to meet their objectives. The exhibit below shows annualized returns and standard deviation for US and global stocks, bonds, and a 60/40 portfolio of both since January 2000.
Are All Balanced Funds the Same?
Despite the common 60% stock/40% bond starting point, balanced funds come in all shapes and sizes. Some stay close to the classic split between stocks and bonds, while others venture tactically around that anchor. Some use all passive funds as the building blocks, some stand by active management funds, and others use a blend of both. Sustainability-focused investors can find tailored offerings, too.
Perhaps the most important distinction between balanced funds is their willingness to invest outside the US. That’s been the biggest single factor in performance differences between balanced funds over the past decade.[1] To simplify things, we can group balanced funds into one of two broad categories:
- US-focused: These funds have consistently invested less than 25% of the portfolio outside US stocks and bonds.
- Global: These funds typically invest more than 25% of assets outside the US.
The exhibit below shows the growth of $10,000 invested in custom benchmarks representing both portfolios over the past decade.
US-focused funds have easily outpaced their more globally diversified peers over the past decade, but there’s no guarantee that streak will last another 10 years. In 2025, the global 60/40 portfolio gained 16% and reached a new all-time high, while its US-only counterpart gained 13%. If US stocks continue to lag, we could be looking at a changing of the guard.
Which Balanced Funds Are the Best?
Whether you favor sticking with the US, embracing the globe, or taking a more middle-of-the-road view, good options exist.
The following funds have Morningstar Medalist Ratings of Gold, Silver, or Bronze and 100% analyst coverage. The tables below show the highest-rated share class for each fund. More expensive share classes may not earn as much conviction. We’ve excluded allocation funds that are better suited as supporting holdings, like multi-asset income or diversified real assets.
Given their high Medalist Ratings, we expect the top-rated mutual funds on our list to outperform peers and their respective category indexes over a full market cycle.
Who Should Invest in a Balanced Fund?
A balanced fund’s appeal is its simplicity. Using a 60/40 fund as a core holding or even a total portfolio saves investors from worrying about choosing individual underlying strategies or keeping up with rebalancing.
But that doesn’t mean balanced funds are right for everyone. Having 50% to 70% of a portfolio in stocks still courts drawdown risk, even when bonds are performing well. During the global financial crisis, for example, the Morningstar US Moderate Target Allocation Index lost 31% from the market peak in October 2007 through the bottom in March 2009. With that near-doomsday scenario in mind, balanced funds are not good candidates for short-term savings. Morningstar’s Role in Portfolio framework suggests investors in a balanced fund should be prepared to hold on for between six and 10 years.
[1]The US portfolio is 60% Morningstar US Market Index and 40% Morningstar US Core Bond Index. The Global portfolio is 60% Morningstar Global Markets Index and 40% Morningstar Global Core Bond Index.