Now can be a good time to line up the best mutual funds to buy for a January market correction.
While it wouldn’t be completely prudent to assume the market’s bull run is ending just yet, a healthy correction of 5% to 10% is almost certain and necessary before the market can justifiably resume its march upward. Therefore anticipating an opportunity early in 2017 for picking up shares of stock mutual funds at lower prices wouldn’t be a bad idea.
The Donald Trump rally could easily turn into retreat as investors lose faith that he will deliver on his campaign promises — namely corporate tax reform. And even if he and a Republican congress can push through the needed legislation to pass reform, it could be 2018 before those changes make an impact. Stock prices won’t likely survive on animal spirits until then.
This all points to a short honeymoon for the new president and a sell-the-news event come inauguration time.
With this backdrop, we share three of the best mutual funds to buy on a January market correction:
Best Mutual Funds to Buy for a Market Correction: Fidelity Select Biotechnology (FBIOX)
Expenses: 0.73%, or $73 annually per $10,000 invested.
Minimum Initial Investment: $2,500
Biotech stocks had a terrible 2016 but are looking oversold and showing market leadership in 2017. Therefore buying shares of funds like Fidelity Select Biotechnology Portfolio (MUTF:FBIOX) can be smart, especially on dips.
Although I chose Fidelity Select Health Care Portfolio (MUTF:FSPHX) to be one of the 10 best Fidelity funds for 2017, FBIOX could be the biggest winner in the first half of the year, assuming the bull market continues strong following an early year correction.
Pharma and biotech stocks like FBIOX top holdings Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and Biogen Inc (NASDAQ:BIIB) could jump quickly when the bull market regains its footing after a selloff.
Best Mutual Funds to Buy for a Market Correction: Vanguard 500 Index (VFINX)
Minimum Initial Investment: $3,000
Investors looking to add to long positions in their mutual fund portfolios will be wise to pick up shares of core holdings like Vanguard 500 Index Fund (MUTF:VFINX), especially when the market sees its first correction of 2017
Long-term investors don’t bother with timing the market but prefer to place their resources on time in the market. And those who have any extra cash to invest are smart to pick up more shares on dips and larger corrections, which is but one of many reasons we named VFINX as one of the best mutual funds to buy for 2017.
VFINX is the original S&P 500 index fund, which means you get cheap exposure to large-cap stocks like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
Best Mutual Funds to Buy for a Market Correction: Fidelity Select Consumer Staples (FDFAX)
Minimum Initial Investment: $2,500
Another fund to make our list of best funds to buy in 2017, Fidelity Select Consumer Staples Portfolio (MUTF:FDFAX), would be a smart buy on a market correction.
Like the health sector, consumer staples were market laggards in 2016 but could be leaders in 2017 as markets turn volatile and downside pressure increases. That’s when investors turn to defensive sectors and funds that hold consumer staples stocks like FDFAX top holdings Procter & Gamble Co (NYSE:PG), British American Tobacco PLC (ADR) (NYSE:BTI) and CVS Health Corp (NYSE:CVS).
FDFAX would also fit nicely in a portfolio with our other choices for best mutual funds to buy for a market correction in 2017.
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.