Now that the market has moved past panic mode and crossed new highs on the major indices, it’s a good time to line up the best mutual funds to buy next time investors panic again.
Using a weather metaphor, it’s smart to prepare for the storm prior to its arrival. Down here on the coast of South Carolina, there’s been no sign of a hurricane thus far in the season but we know one will be brewing off the west coast of Africa and heading our way in the not-too-distant future. So now is the time to prepare for the storm, rather than waiting until the last minute, when it may be too late.
When it comes to buying mutual funds, you can prepare for the storm by identifying which funds to buy when the market tanks again.
To help you prepare for the next storm, here are three of the best mutual funds to buy when everyone else is panicking.
Best Mutual Funds to Buy: Fidelity Select Software and IT Services (FSCSX)
Expenses: 0.77%, or $77 per $10,000 invested annually
Minimum Initial Investment: $2,500
When the market is in risk-off mode, investors often oversell tech stocks, and one of the best mutual funds to buy is Fidelity Select Software and IT Services (MUTF:FSCSX).
FSCSX is a performance leader among mutual funds in the technology category. Therefore, when you buy shares on dips in price, you stand to benefit in the long run, as well as the short term, as prices resume their rise.
For evidence of long-term strength for FSCSX look no further than the five- and 10-year performance ranks, which are in the top 1% compared to all other technology funds.
The FSCSX portfolio consists primarily of big tech names like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), and Facebook Inc (NASDAQ:FB), but there are also a handful of small- and mid-cap stocks in the mix.
Best Mutual Funds to Buy: USA Mutuals Barrier Fund Investor Class Shares (VICEX)
Minimum Initial Investment: $2,000
One of the best mutual funds to hold in uncertain economic times is USA Mutuals Barrier Fund Investor Class Shares (MUTF:VICEX) — more commonly known as the Vice Fund.
The VICEX portfolio holds stocks like Philip Morris International Inc. (NYSE:PM), Reynolds American, Inc. (NYSE:RAI) and Altria Group Inc (NYSE:MO). Many of the holdings fall under the unofficial equity categorization of “sin stocks” because they include companies in the gaming, tobacco and alcoholic beverage industries. VICEX also holds aerospace and defense stocks.
Therefore VICEX makes a solid defensive stock fund because sin stocks can hold up better than the major market indices during challenging economic times.
Also the volatility and low-single-digit returns for stocks in 2016 is reminiscent of 2011, when VICEX crushed the S&P 500 Index. Year-to-date, VICEX is far ahead of the major market indices and is beating 95% of its category peers.
Best Mutual Funds to Buy: Vanguard Long-Term Bond Index Fund (VBLTX)
Minimum Initial Investment: $3,000
When stock prices are tanking, bond prices are usually rising and this type of environment is ripe for mutual funds like Vanguard Long-Term Bond Index Fund (MUTF:VBLTX).
Long-term bonds are more sensitive to interest rate changes than are short- and intermediate-term bonds. Also, bond prices move in the opposite direction as interest rates. Therefore, when the market and economic environment turn negative, and the Federal Reserve signals that it will keep interest rates lower for longer than expected, bond prices will usually rise and the long-term bonds typically get the biggest boost.
For example, 2016 has been a year defined by periods of economic uncertainty and market volatility, and long-term bond mutual funds like VBLTX have been beating both the bond market and the stock market.
The year-to-date return for VBLTX is 16.3%, which is far ahead of the 5.6% gain on the Barclays Aggregate Bond Index and the 6.6% gain on the S&P 500.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.