How Can a Balanced Fund Get Crushed for 15 Years—and STILL Be Ahead?

(Once again, with an assist from ChatGPT in devising the numbers. You can watch the video here.)

If you’ve been investing for the last 15 years, you’ve learned a pretty simple lesson:

Stocks win.

At least that’s what the numbers seem to tell us.

The U.S. stock market has had an extraordinary run. Meanwhile, balanced funds—with a significant portion of their portfolios sitting in bonds—have looked downright pedestrian by comparison.

But I recently ran across a comparison that stopped me in my tracks.

Take Fidelity Balanced Fund (FBALX) and Vanguard Total Stock Market Index Fund (VTSMX).

Invest $100,000 in each at the beginning of 2000.

Reinvest all dividends and capital-gain distributions.

Don’t add another penny.

Don’t withdraw anything.

Just let the money compound.

Now fast-forward more than 26 years to August 2026.

The result?

FBALX: approximately $1.03 million

VTSMX: approximately $866,000

Read that again.

The balanced fund is STILL ahead.

And that’s despite the total stock market absolutely dominating the balanced fund over much of the last 15 years.

How in the world is that possible?

It All Goes Back to 2000

The answer isn’t what happened recently.

It’s what happened at the beginning.

Here’s how the two funds performed during the first three years of our experiment:

Think about that.

The stock investor lost money for three consecutive years.

The balanced investor actually made money in 2000 and 2001 and suffered a relatively modest loss in 2002.

What did that do to our original $100,000?

By the end of 2002, approximately:

VTSMX: $62,900

FBALX: $101,500

That’s the ballgame—or at least a huge part of it.

The FBALX investor entered 2003 with roughly 61% more money than the VTSMX investor.

And that’s critically important because percentages don’t compound in a vacuum.

They compound on dollars.

A 50% Loss Requires a 100% Gain

This is one of the simplest concepts in investing, yet I don’t think investors fully appreciate its significance.

Suppose you have $100,000 and lose 50%.

You’re down to $50,000.

If the market then rises 50%, are you back to $100,000?

Nope.

You’re only at $75,000.

You need a 100% return on your remaining $50,000 just to get back to where you started.

That’s essentially the problem VTSMX created for itself during the dot-com collapse.

By the beginning of 2003, VTSMX wasn’t competing with FBALX from the same starting line anymore.

FBALX had about $101,500 working for it.

VTSMX had only about $62,900.

That’s an enormous hole to climb out of.

But Then Stocks Came Roaring Back

And roar they did.

VTSMX gained about 31.9% in 2003.

It then participated fully in the bull market that followed.

This is exactly what we’d expect. An all-stock portfolio should outperform a balanced stock-and-bond portfolio when stocks are booming.

But then something happened before the stock investor could completely erase the damage from 2000–2002.

2008.

The financial crisis hammered stocks again.

VTSMX lost approximately:

−37.0%

FBALX lost approximately:

−30.8%

Neither result was pleasant.

But once again, the balanced portfolio lost less.

Peak-to-trough, the difference was even more dramatic. VTSMX’s maximum drawdown was roughly 55%, compared with about 43% for FBALX.

So within the first nine years of our experiment, the all-stock investor experienced TWO enormous bear markets.

That’s incredibly important to what happens next.

Then Everything Flipped

After the financial crisis, U.S. stocks went on an incredible run.

And now the advantage shifted decisively toward VTSMX.

Consider some of these years:

That’s not a small difference.

Over the last decade or so, owning the total stock market instead of a balanced portfolio has been enormously beneficial.

As of August 2026, VTSMX’s recent long-term annualized returns have substantially exceeded those of FBALX.

And yet…

It still hasn’t been enough.

More Than 26 Years Later, FBALX Is Still Ahead

Here’s approximately where our original $100,000 stands today:

The balanced fund has approximately $167,000 more.

That’s roughly 19% more ending wealth.

Think about what that means.

VTSMX has been the stronger performer for much of the last 15 years.

Not slightly stronger.

Dramatically stronger.

Yet the damage stocks suffered at the beginning of this particular period was so severe that more than 15 years of subsequent outperformance still hasn’t completely overcome FBALX’s early advantage.

This Isn’t Really a Story About FBALX

And this is where I think the lesson gets important.

I’m not arguing that you should run out and buy Fidelity Balanced Fund.

I’m certainly not arguing that balanced funds always beat stocks.

Change the starting date and you can get a completely different answer.

Start the comparison in 2010 instead of 2000 and stocks absolutely crush FBALX.

A $100,000 investment in an S&P 500 fund from roughly 2010 through 2026 would have grown dramatically more than the same investment in FBALX.

So which comparison is “right”?

Both of them.

That’s the point.

Starting Dates Matter More Than We Think

We love looking at trailing returns.

Five-year returns.

Ten-year returns.

Fifteen-year returns.

Then we look at whichever investment performed best and assume we’ve learned something profound about which portfolio is superior.

But sometimes what we’ve really learned is simply:

When we started the clock.

Start in 2000 and the balanced fund looks brilliant.

Start around 2010 and the balanced fund looks overly conservative.

Same funds.

Same investment philosophy.

Completely different conclusion.

That’s why I’m increasingly skeptical of making investment decisions based primarily on trailing returns.

The Order of Returns Matters Even Without Withdrawals

Normally, we talk about “sequence-of-returns risk” when discussing retirees.

A retiree withdrawing money while stocks are falling can permanently damage a portfolio because he is forced to sell more shares at depressed prices.

But notice something important about our example.

There were no withdrawals.

Nobody was taking $40,000 a year from these portfolios.

Nobody was selling shares to pay the mortgage.

Nobody was rebalancing.

We simply invested $100,000 and left it alone.

And the starting sequence still had a massive effect on the relative outcome more than a quarter-century later.

Technically, with no cash flows, rearranging a given set of annual returns doesn’t change the final compounded value. But that’s not what we’re doing here. We’re comparing two portfolios whose returns differed enormously during the early years.

Those early losses left VTSMX compounding from a much smaller dollar base.

That’s the crucial distinction.

Now Imagine You Were Retired

This is where things get really interesting.

Our hypothetical VTSMX investor didn’t withdraw a dime.

Imagine instead that he retired on January 1, 2000 with $1 million.

Now he needs $40,000 in the first year.

Then $40,000 plus inflation the next year.

And so forth.

Stocks fall in 2000.

He sells shares.

Stocks fall again in 2001.

He sells more shares.

Stocks fall AGAIN in 2002.

More shares have to go.

The market eventually recovers—but some of those shares aren’t there anymore to participate in the recovery.

That’s true sequence-of-returns risk.

And it suggests that the difference between an all-stock portfolio and a balanced portfolio for a January 2000 retiree could be considerably more dramatic than the accumulation example we’ve just examined.

The Bigger Lesson

There is a temptation in investing to look at whatever has worked best recently and extrapolate it indefinitely.

After the last 15 years, it’s easy to conclude:

Why own bonds at all?

Stocks have produced much higher returns.

That’s true.

But the investor who started in January 2000 experienced a very different reality.

He discovered something investors inevitably rediscover every few decades:

Avoiding a catastrophic loss can sometimes be just as important as capturing the biggest gains.

You don’t need to win every year.

You don’t even necessarily need to own the asset with the highest long-term expected return.

Sometimes simply having more money left when the recovery begins can make an enormous difference.

More than 26 years after our experiment began, that’s exactly what we’re seeing.

VTSMX has dominated for much of the last 15 years.

And FBALX is still ahead.

That’s the power—and the strange mathematics—of compounding.