7 Best Funds for a New Rollover IRA Portfolio

When you start up a rollover IRA, you have to build a portfolio from scratch. Let these mutual funds be your bedrock.

You’ve set up your new rollover IRA, but now you need to actually compile some holdings. Naturally, by opening an IRA, you now have access to stocks and ETFs, but there’s still a place in every IRA for a few of the best funds on the market.

7 Best Funds for a New Rollover IRA Portfolio
Source: Lendingmemo

And now, you suddenly have a much larger universe of funds to choose from.

Since 401k rollovers transfer into rollover IRAs in the form of cash, as opposed to an in-kind transfer of securities, you’ll be starting a new portfolio from scratch. Thus, in searching for the best funds and stocks to buy, you’ll also be brushing up on your portfolio management skills.

With that in mind, we put together a list of the seven best funds to hold in a rollover IRA that can work well as a diversified portfolio of mutual funds targeted for the long run.

Best Funds for a Rollover IRA: Fidelity Spartan 500 Index Fund (FUSEX)

Fidelity mutual fundsExpenses: 0.095%, or $9.50 for every $10,000 invested
Minimum Initial Investment: $2,500

When you begin building your new rollover IRA portfolio, you’ll want a low-cost large-cap index fund. One of the best funds in this respect is the Fidelity Spartan 500 Index (FUSEX).

As the nation’s top record keeper for 401k plans and with over $1 trillion in retirement assets under management, many investors already have a 401k at Fidelity and choose to simply open a rollover IRA there and transfer their 401k assets into it.

With hundreds of high quality large-cap stocks like Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Exxon Mobil Corporation (XOM), S&P 500 index funds make solid core holdings for portfolio construction.

And with dirt-cheap expenses of just 0.1%, FUSEX is the best choice in this category of funds.

Best Funds for a Rollover IRA: Vanguard Mid-Cap Index Fund (VIMSX)

Best Funds for a Rollover IRA: Vanguard Mid-Cap Index Fund (VIMSX)Expenses: 0.23%
Minimum Initial Investment: $3,000

Mid-cap funds are a good way to help juice the long-term returns of any portfolio, as they provide the best risk-adjusted returns on the market.

Vanguard Mid-Cap Index (VIMSX) is one of the best funds you can buy in the mid-cap universe.

For evidence of the long-term performance strength for VIMSX, look no further than the 15-year annualized return of 8.8%, which beats more than 90% of mid-cap blend funds and it crushes the 5.8% return for the S&P 500 index during the same period.

The VIMSX portfolio has 363 holdings, most of which are mid-cap stocks. Some of the top holdings admittedly are large-cap stocks, such as Ross Stores, Inc. (ROST), Fiserv Inc (FISV) and Tyson Foods, Inc. (TSN) — though they’re still smaller in market cap than most S&P 500 stocks.

Best Funds for a Rollover IRA: Fidelity Small-Cap Growth (FCPGX)

Best Funds for a New Rollover IRA Portfolio: Fidelity Small-Cap Growth (FCPGX)Expenses: 0.92%
Minimum Initial Investment: $2,500

To complete the growthiest part of your rollover IRA’s domestic equity mix, an outstanding small-cap growth fund like Fidelity Small Cap Growth (FCPGX) makes a fine choice.

Although small-cap stocks have struggled in the past year, they tend to edge out the major market indices in the long run. And the combination of below-average expenses and above-average performance makes FCPGX an ideal fund to fill your portfolio’s small-cap stock allocation slot.

FCPGX is an actively managed fund, and lead manager Patrick Venanzi has a strong performance record during his four-plus years’ tenure. The performance rank for the three-year return beats over 90% of small-cap growth funds, and the five-year return outshines more than 85% of category peers.

Best Funds for a Rollover IRA: Fidelity International Capital Appreciation (FIVFX)

Best Funds for a Rollover IRA: Fidelity International Capital Appreciation (FIVFX)Expenses: 1.13%
Minimum Initial Investment: $2,500

It’s not easy finding a well-managed international stock fund with a strong performance record that is open to new investors, but Fidelity International Capital Appreciation (FIVFX) is ripe for the picking.

Lead manager Sammy Simnegar has been at the helm of FIVFX for eight years and has put up an impressive performance record during his tenure. Performance ranks for one-, three-, five- and 10-year returns range from top quartile to top 10 percent compared to other foreign large growth funds.

FIVFX has 207 holdings, most of which are foreign large-caps like Novartis AG (ADR) (NVS), Unilever plc (ADR) (UL) and Novo Nordisk A/S (ADR) (NVO).

Best Funds for a Rollover IRA: Fidelity Spartan U.S. Bond Index (FBIDX)

Best Funds for a Rollover IRA: Fidelity Spartan U.S. Bond Index (FBIDX)Expenses: 0.2%
Minimum Initial Investment: $2,500

Another low-cost Fidelity fund making our list of best funds for a rollover IRA is Fidelity Spartan U.S. Bond Index (FBIDX).

FBIDX also made our list of best funds for a 401k plan and the attributes of this passively managed bond index fund are the same with regard to a rollover IRA: Even the best fund managers of actively managed bond funds get interest rates wrong, which is why index funds have performed better in recent years — and this outperformance can continue in the future.

And with all due respect to the cheaper and larger Vanguard Total Bond Index (VBMFX), the returns for FBIDX have historically edged it out.

Best Funds for a Rollover IRA: Pimco High Yield D (PHYDX)

Best Funds for a Rollover IRA: Pimco High Yield D (PHYDX)Expenses: 0.9%
Minimum Initial Investment: $1,000

High yield bond funds can make for a smart compliment to a bond index fund in your rollover IRA and Pimco High Yield D (PHYDX) is one of the best funds in this category.

Pimco High Yield holds bonds of lower credit quality than investment grade but the portfolio avoids the riskiest of junk bonds. Therefore, PHYDX has a good balance of risk and return.

Pimco’s fund has consistently and significantly outperformed the average high-yield bond fund, and it clearly has avoided the firm’s problematic aftermath of the 2014 exodus of Bill Gross, who managed PHYDX in 2009.

Under the direction of Andrew Jessup, lead manager since January 2010, PHYDX has outperformed three-fourths of funds in the high-yield bond category.

Best Funds for a Rollover IRA: Vanguard Balanced Index Fund (VBINX)

Best Funds for a Rollover IRA: Vanguard Balanced Index Fund (VBINX)Expenses: 0.23%
Minimum Initial Investment: $3,000

If you’re looking for a one-fund holding place for your rollover IRA, one of the best funds to buy for this is Vanguard Balanced Index (VBINX).

The VBINX portfolio has a moderate allocation of approximately 58% stocks, 40% bonds and 2% cash. This a solid mix of securities that can put up long-term performance that stays ahead of inflation but will have less volatility than a portfolio of 100% stocks.

The equity portion of the VBINX portfolio is primarily large-cap stocks like Alphabet Inc (GOOG, GOOGL) and Johnson & Johnson (JNJ), and the fixed income portion consists of intermediate-term bonds with an average credit quality of AA.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds FUSEX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, South Carolina. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/7-best-funds-rollover-ira/.

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