Total returns generated from a portfolio of equities and fixed-income investments can maintain purchasing power over the long term while preserving capital. These five mutual funds from the T. Rowe Price Group Inc. are particularly suited to building a total return investment portfolio that can generate a good withdrawal rate.
T. Rowe Price Dividend Growth Fund
Stocks with increasing dividends can deliver the best combination of income and growth. They can also add portfolio stability during periods of big market fluctuations. The T. Rowe Price Dividend Growth fund invests in companies with long histories of increasing dividends. Among its holdings are companies like Microsoft, JPMorgan Chase & Co., and UnitedHealth Group Inc. For an actively managed fund, its expense ratio of 0.64% is very reasonable.
T. Rowe Price Personal Strategy Income Fund
The T. Rowe Price Personal Strategy Income Fund is the epitome of total return funds. It is categorized as a conservative allocation fund because of its emphasis on fixed-income investments overstocks, currently at a 40/60 weighting. The fund can change the allocation based on changing circumstances, but the allocation range for fixed income will never exceed 45 to 65%. The fund can also invest in alternative investment securities whenever it identifies special opportunities. On the fixed-income side, it invests primarily in investment-grade bonds; on the equity side, it is weighted toward well-established large-cap companies such as Amazon.com. Its expense ratio as of February 2019 is 0.41%.
T. Rowe Price Real Estate Fund
For optimal diversification, an income portfolio should contain an allocation of real estate. The T. Rowe Price Real Estate Fund provides the real estate exposure a portfolio needs, but with the liquidity many conservative investors want. A minimum of 80% of its assets is invested in equity securities, including a significant portion in equity real estate investment trusts (REITs), which generate high dividend yields. Its 0.73% expense ratio is considered average for its category.
T. Rowe Price Balanced Fund
The T. Rowe Price Balanced Fund is a more moderate allocation of 65% stocks and 35% fixed-income securities. It can also invest in foreign securities for greater diversification. The fund managers have the discretion to invest in growth and value stocks, and stocks of all market capitalizations. Generally, they will go anywhere to achieve the best mix of investments for generating steady growth and current income while preserving capital. Its expense ratio of 0.57% is fairly reasonable for an actively managed fund.
T. Rowe Price Emerging Markets Bond Fund
A small slice of the T. Rowe Price Emerging Markets Bond Fund could be ideal for investors who are willing to assume a little more risk for a boost in yield. The bonds of emerging countries can yield much more than bonds from developed countries. Some of its holdings include corporate and government bonds from Russia, Brazil, and Turkey, which can be higher risk, but the fund attempts to maintain an average double-B credit rating for its portfolio. The yield, as of February 2019, is 5 %, which may be good for moderate investors. This fund should only represent a small portion of a portfolio, and its expense ratio is a bit high at 0.92%.
T. Rowe Price Retirement Income 2020 Fund
In order to generate income, this fund invests in a diversified portfolio of other T. Rowe Price stock and bond funds that represent various asset classes and sectors. Its allocation between stock and bond funds can shift according to the retirement date. Once the target date is achieved, allocation to stocks should be approximately 55% of assets. Its exposure to stocks will continue to decline until approximately 30 years after its target date when its allocation to stocks will remain fixed at approximately 20% of its assets and the remainder will be invested in bonds. The yearly payout for the upcoming calendar year is determined on September 30th of the year before. This monthly distribution varies from year-to-year, based on the fund’s performance and how many fund shares are held in the account.
Successful investing is all about balancing risk and reward, and these T. Rowe Price funds can provide enough diversification to achieve this balance.