The Vanguard Asset Allocation Fund (VAAPX) Isn’t Worth Owning

Vanguard has plenty of quality mutual funds, both index and actively-managed, but it’s not all sunshine and happiness.  Vanguard has its share of stinkers, as well.  The Vanguard Asset Allocation Fund (VAAPX) is one of them.

What Purpose Does The Asset Allocation Fund Serve?

For the life of me, I can’t figure out why the Asset Allocation Fund exists.  It has approximately a billion strikes against it, including…

1. Shifting Allocation – Is it a stock fund?  A balanced fund?  A bond fund?  Nobody knows because the Asset Allocation Fund is constantly shifting its asset allocation with market conditions.  When the fund’s management team think stocks are pricey, the fund holds more bonds.  When management thinks stocks are cheap, it holds more stocks.  This is market timing, pure and simple, and goes completely against the teachings of John Bogle, founder of Vanguard.
2. It’s Expensive – The Asset Allocation Fund is essentially a market-timing index fund (or combination of two index funds, as the case may be).  Why should it cost 0.39%?
3. Low Returns, High Risk – Morningstar rates the Vanguard Asset Allocation Fund only two stars out of five due to poor returns and high risk relative to its peers.  Need I say more?
4. It’s Not Obvious How To Use It – Should you consider it a stock fund for the purposes of your asset allocation?  A balanced fund?  If a balanced fund, what percentage of bonds should you assume?  The fact is, investing shouldn’t be this complicated.  I see absolutely no reason to prefer the Asset Allocation Fund over a portfolio of lower-cost stock and bond index funds.
5. No International Or Small-Cap Exposure – To be truly diversified, you need at least three different asset classes and preferably more.  The Asset Allocation Funds has only two.  While you could certainly buy an international and small-cap index fund to round out your asset allocation, at this point you might as well skip the Asset Allocation Fund.

Do You Own The Asset Allocation Fund?

Do you own the Vanguard Asset Allocation Fund (VAAPX) or another fund like it?  What prompted you to purchase it?  Do you see value in this fund?  Please feel free to enlighten me if there’s anything obvious I’ve missing.  Otherwise, I think it would be better for everybody if Vanguard simply killed this fund.