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Even in the best of times, most older adults couldn’t care less about whether the stock funds they own top the performance charts or beat the stock market.
What most of us — and a growing number of younger investors — want are mutual funds that produce decent profits in good markets, and, most important, limit losses in bad markets.

That’s doubly true now, because these are hardly the best of times. The U.S. economic recovery is anemic, and Europe may well fall into a double-dip recession.

Federal, state and local governments, as well as many consumers, are up to their eyeballs in debt, and many of us think the stock market will continue to provide a bumpy ride for the next several years.

My best guess is that well-chosen stocks will rise despite those bumps, but at closer to 5 or 7 percent annually than their historical average of about 9.5 percent.

Lower-risk funds to consider

So, for those investors dissatisfied with the currently microscopic yields on bank certificates of deposit, and aware that bond funds provide little or no protection against the very real risk of rising interest rates and inflation in the coming years, I recommend the following four lower-risk funds.
All the funds own stocks and bonds. I’ve arranged them in order from least risky to most risky. But even the most risky fund here qualifies as “low risk” compared to the overall stock market.

Vanguard Wellesley Income (1-800-635-1511, www.vanguard.com) is one of the most conservative stock owning funds you can buy from Vanguard — which specializes in conservative, low-cost investing. Expenses are a mere 0.31 percent annually, and the fund yields an annualized 4.1 percent.
Wellington Management has run this fund since inception in 1970. The managers keep roughly 60 percent of assets in mainly high-quality corporate bonds. Stock manager Michael Reckmeyer invests the rest in primarily high-yielding, blue-chip stocks. The fund has returned an annualized 7 percent over the past 19 years, through mid-August.

By comparison, Standard & Poor’s 500stock index haslost an annualized 1 percent over the same period. Wellesley is less than half as volatile as the S&P 500. It lost just 9.9 percent in 2008 when the S&P 500 plunged 37 percent.

Vanguard Wellington is Wellesley’s slightly feistier twin. Wellington Management has run this classic balanced fund since — get this — July 1, 1929. The fund has returned an annualized 6 percent over the past 10 years and tumbled 22.4 percent in 2008’s collapse.
It usually holds two-third of assets in stocks and one-third in bonds. Expenses are 0.34 percent, and the fund’s annualized yield is 3.2 percent. Like Wellesley it sticks to high-quality bonds. Stock Manager Ed Bousa focuses on stocks of large companies that pay dividends. The fund is one-third less volatile than the S&P.

FPA Crescent (800-982-4372, www.fpafunds. com) is my favorite of these four funds. It’s more eclectic than the others, and much more flexible.
Steven Romick, who has managed the fund since 1993, adjusts its holdings based on his views on the economy and individual securities. Currently, he’s quite worried about global economic weakness and debt levels.

Accordingly, he has 38 percent of the fund in cash and 17 percent in mostly AAArated corporate bonds. The rest is in mostly defensive stocks, such as healthcare and consumer staples.

The fund has returned an annualized 11 percent over the past 10 years — tops among these four funds. It lost 21 percent in 2008. Crescent is just a smidgen more volatile than Wellington. Its expense ratio is 1.17 percent, and the fund’s annualized yield is a puny 1.3 percent.

T. Rowe Price Capital Appreciation (1-800-638-5660, www.troweprice.com) is misnamed, but it’s a fine fund. This is Baltimore- based T. Rowe Price’s most conservative stock fund, typically with about 60 to 70 percent of assets in stocks.

Unlike Wellesley and Wellington, in this fund, manger David Giroux buys a wide variety of high-yielding securities, including “junk” bonds, convertible securities and leveraged bank loans. With the stock portion of the fund, he favors dividend paying stocks that are otherwise out of favor.

The fund, which plummeted 27.2 percent in 2008, is about 15 percent less volatile than the S&P. It has returned an annualized 9 percent over the past 10 years. Capital Appreciation yields an annualized 2.2 percent, and expenses are 0.74 percent annually.

Steven T. Goldberg (steve@tginvesting.com; 301-650-6567) is a freelance writer and investment advisor in Silver Spring, Md. He welcomes reader questions. Send them to: Steven Goldberg, c/o The Beacon, P.O. Box 2227, Silver Spring, MD 20915-2227.