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7 Mutual Funds Great for Your 401k

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Selecting mutual funds for a 401(k) can be a daunting experience. There are a large number to choose from, and it can be difficult to determine which are the best. Because of this, it is common for people to put together portfolios that lag. And yes, this can make it difficult to achieve your retirement goals.

But the good news is that you do not have to be a financial guru to be successful. The critical factor is to focus on a few core principles. For example, one is to diversify across different types of investments and markets. Next, it is advisable to avoid making quick decisions, such as by selling your mutual funds when the markets dive!

It is also a good idea to look at risker investments, such as those in international markets or growth stocks. They usually perform well over the long-term.

So, in light of all this, what are the mutual funds to consider? What types make sense for the typical 401(k) investor?

Well, here’s a look at seven well-known mutual funds that are included in many plans:

  • Vanguard 500 Index Fund (MUTF:VFINX)
  • Fidelity Low-Priced Stock Fund (MUTF:FLPSX)
  • Dodge & Cox Balanced Fund (MUTF:DODBX)
  • T. Rowe Price Blue Chip Growth Fund (MUTF:TRBCX)
  • Fidelity Investment Grade Bond Fund (MUTF:FBNDX)
  • Vanguard International Growth Fund (MUTF:VWIGX)
  • T. Rowe Price Dividend Growth Fund (MUTF:PRDGX)

Now, let’s dive in and take a closer look at each one.

Great Mutual Funds: Vanguard 500 Index Fund (VFINX)

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A great option for any 401(K) is to have a mutual fund that tracks the S&P 500. The index, which was launched in the late 1950s, tracks the largest publicly traded companies in the U.S. and includes about 80% of the total market capitalization of equities markets.

That said, the premier fund to track this is the Vanguard 500 Index Fund, which has $557 billion in assets under management. This fund was launched in the mid-1970s and was actually the first index offering.

Overall, a key benefit for VFINX is the low costs. Note that the expense ratio is only 0.14%. This means that more of the returns go back to investors and this can make a huge difference in terms of long-term returns.

Fidelity Low-Priced Stock Fund (FLPSX)

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When it comes to mutual funds, the focus is often on those that are based on indexes. And there are good reasons for this. First of all, the costs are usually lower. And it is also rare for a portfolio manager to consistently beat the markets.

Yet, this does not mean you should shun actively managed funds. Keep in mind that these can allow for more flexibility and higher returns; That is, so long as there is a good team in place.

This is certainly the case with the Fidelity Low-Priced Stock Fund. The portfolio manager, Joel Tillinghast, is a legend in the investment world. He joined Fidelity in 1986 as an equity analyst and then would take the helm of FLPSX a few years later. His investment approach has been to do deep research and look for value opportunities.

What about the track record? It is one of the best. In fact, since inception of FLPSX, the average return has been 12.71%.

Great Mutual Funds: Dodge & Cox Balanced Fund (DODBX)

A Broken Egg With 401K Tag Sit on a Pile of Money

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With mutual funds in a 401(k), its advisable to have an allocation across both bonds and stocks. This helps to even out the inevitable volatility in the portfolio.

However, it can be difficult to come up with the right split. So, what do you do? Well, you can invest in a balanced fund. This is where about 60% of the portfolio is in stocks and the rest is in bonds. It’s a strategy that has proven to be quite effective.

That said, there are definitely many balanced funds available. But there is one that is among the standouts: the Dodge & Cox Balanced Fund. Its been around since 1931, when the U.S. plunged into the Great Depression. Since then, the portfolio mangers have taken a conservative approach to investing.

The result is that the returns for DODBX have been fairly consistent. For the past decade, the average gains has come to 9.96%.

T. Rowe Price Blue Chip Growth Fund (TRBCX)

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This year has seen a major bull move for growth stocks, especially those focused on cutting-edged technologies like cloud computing, mobile and AI (Artificial Intelligence). But these types of investments can also see big drops. This was the case, for example, when the dot-com boom imploded.

However, a mutual fund can help reduce the risks. Yet the long-term results can still be quite robust.

Just look at the T. Rowe Price Blue Chip Growth Fund. For the past decade, the average return was an impressive 17.94%.

The portfolio manager, Larry Puglia, has been managing TRBCX since 1993. His focus is to do extensive research on large and medium-sized companies that have above-average growth paths. As for some of the current top holdings, they include Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL).

Great Mutual Funds: Fidelity Investment Grade Bond Fund (FBNDX)

Wooden blocks with the word Bonds and coins.

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Having a bond mutual fund in your 401(k) can help provide diversification and stability. But there is another advantage to bond mutual funds: taxes. Your 401(k) is a shelter for the income generated. This can certainly add up over time.

Therefore, what is a good bond fund to consider? Look at the Fidelity Investment Grade Bond Fund. A minimum of 80% of the assets are allocated to investment-grade bonds and debt securities, which have medium to high quality. The rest of the portfolio is for risker investments.

Overall, the FBNDX fund has been around since the early 1970s and has been able to maintain consistent returns. Over the pas 10 years, the average gain was about 4.2%.

Vanguard International Growth (VWIGX)

coins and plants growting up from the ground to represent growth stocks to buy

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It’s always smart to have some international exposure with your 401(k). Let’s face it, there are many countries that are growing quickly and have exciting companies. Thus, investing in foreign companies can also diversify not only geographically but with different currencies.

However, the expenses for mutual funds in this category can be fairly high. After all, there is usually a need to setup operations in different countries.

This is why it’s a good idea to look for an index fund like the Vanguard International Growth fund. The expense ratio on VWIGX is 0.43%, which compares to 1.10% for the average for the category.

The fund is based on the All Country World Index, which excludes U.S. stocks. This covers large and medium sized companies in 23 developed and 26 emerging markets.

There are currently 127 stocks in the portfolio and some of the top holdings include Alibaba (NYSE:BABA), Tesla (NASDAQ:TSLA), and Tencent Holdings (OTCMKTS:TCEHY).

Great Mutual Funds: Fidelity Equity Dividend Income Fund (PRDGX)

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A good strategy for a 401(k) is to invest in high-quality companies that have a history of growing their dividend payouts. This provides a cushion when markets get bearish. But dividends are also an indication of strength, as it shows that a company is consistently profitable.

One of the top mutual funds in this category is the Fidelity Equity Dividend Income Fund, which has $17.2 billion in assets under management. Granted, the current yield may seem minimal: 1.21%. But keep in mind that this is still much better than the interest rates on high-quality bonds.

Moreover, when evaluating a dividend fund, it’s a good idea to look at the total return; That is, the combination of the yield and capitalization. Based on this metric, the PRDGX fund has had a good long-term track record. In fact, for the past ten years, the average annual return was 13.75%

The portfolio manager is Tom Huber, who has been at the helm for more than 20 years. The focus is to invest in large companies that are likely to continue to increase their dividends. Some of the top holdings include Visa (NYSE:V), JPMorgan (NYSE:JPM) and UnitedHealth (NYSE:UNH).

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence BasicsThe Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.

Article printed from InvestorPlace Media, https://investorplace.com/2020/11/7-mutual-funds-great-for-your-401k/.

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