4 Best Mutual Funds to Buy for a Stress-Free Retirement

Mutual funds - 4 Best Mutual Funds to Buy for a Stress-Free Retirement

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Mutual funds continue to be extremely popular with American investors. Today, 45.7% of households in the U.S. have money invested in at least one mutual fund, the exact same proportion as in 2000, according to data compiled by Statista. The amount of money invested in U.S. mutual funds has more than tripled over the last two decades, breaking the $20 trillion mark in late 2019.  Mutual funds remain a popular investment vehicle despite the rise of exchange traded funds (ETFs), special purpose acquisition companies (SPACs), cryptocurrencies and a growing interest among retail investors in buying individual stocks. Many investors  like that mutual funds are actively managed by professionals, provide consistent returns with little volatility and have fees that continually decline.

In this article, we spotlight four of the best mutual funds to buy for a stress-free retirement.

  • Vanguard Total Stock Market Fund (MUTF:VTSAX)
  • Fidelity 500 Index Fund (MUTF:FXAIX)
  • T. Rowe Price New Horizons Fund (MUTF:PRNHX)
  • Fidelity Magellan Fund (MUTF:FMAGX)

Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

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The Vanguard Group in Malvern, Pennsylvania is one of the best investment management companies in America. Vanguard founder John Bogle changed the investment industry by pioneering the exchange traded fund (ETF) in the mid-1970s and by focusing on keeping fees as low as possible. Today, Vanguard mutual funds continue to deliver stellar returns to investors at a fraction of the costs charged by other investment firms. And among the mutual funds offered by Vanguard, the company’s Total Stock Market Index Fund Admiral Shares is the very best.

The Total Stock Market Index Fund has assets under management of $920 billion and an expense ratio of just 0.04%, which is rock bottom in the industry. The fund delivered a 62% return in the last year and provided investors with a 17% gain over the past three years. Another key advantage of VTSAX is its diversification. The fund provides exposure to the entire U.S. stock market. Small, mid-sized and large cap companies are included in the fund, which also mixes growth and value stocks. In all, the fund has 3,590 stocks in its holdings, including Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB).

Retirees can set it and forget it with this fund from Vanguard. Note that there is a minimum investment requirement of $3,000.00.

Mutual Funds: Fidelity 500 Index Fund (FXAIX)

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Boston-based Fidelity is one of the biggest investment management companies in the world today with $5 trillion of assets under management. In business since 1946, Fidelity has operated some very successful mutual funds over the years. And one of the most successful is its Fidelity 500 Index Fund. As the name suggests, this mutual fund tracks the performance of the S&P 500 stock index that is comprised of the 500 largest U.S. companies by market capitalization. As the S&P 500 goes, so goes this mutual fund.

Many of the world’s most successful investors recommend that individuals track the S&P 500 and nothing more. Legendary investors such as Warren Buffett point out the most actively managed funds fail to beat the return of the S&P 500 each year, so retail investors best bet is to track the index. That’s exactly what the Fidelity 500 Index Fund does. With nearly $335 billion under management, the fund has delivered a one year return of 56% and a three year return of 17%. Given that it’s passively managed, the fund also has an ultra-low expense ratio of 0.015%.

Top holdings in FXAIX include Apple (NASDAQ:AAPL), Berkshire Hathaway (NYSE:BRK.B) and JPMorgan Chase (NYSE:JPM)

    Mutual Funds: T. Rowe Price New Horizons Fund (PRNHX)

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    Small but mighty, investment firm T. Rowe Price’s New Horizons Fund focuses exclusively on small and mid-sized growth stocks. In order to capture growth, the fund is comprised of the stocks of companies that are developing new and innovative technologies, as well as popular and emerging consumer products. A neat feature of the New Horizons fund is that it includes early stage companies that are still private and do not yet sell shares to the public on a stock exchange. In this way, the fund provides investors with exposure to exclusive start-up companies.

    The T. Rowe Price New Horizons Fund is a bit exclusive in that it is frequently closed to new investors. The fund opens up periodically to take in new money, and investors need to act quickly to get in on the action. When the fund is open, it requires a minimum investment of $2,500. PRNHX is a little more expensive than other mutual funds. Its expense ratio is 0.76%. However, the fund’s performance is hard to argue against. Over the past year, New Horizons delivered a 56% return and provided gains to investors of 30% over three years.

    Top holdings in the New Horizons Fund include companies such as Restoration Hardware (NYSE:RH), Vail Resorts (NYSE:MTN) and StoneCo (NASDAQ:STNE).

     Fidelity Magellan Fund (FMAGX)

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    Another top pick from Fidelity is its legendary Magellan Fund. This is the fund that Peter Lynch managed. From 1977 to 1990, Peter Lynch averaged a 29% annual return for the Magellan Fund, consistently more than double the S&P 500’s return over the same period, and making Magellan the top performing mutual fund in the world at that time. While FMAGX is no longer in its heyday, it still has a lot to recommend it, especially to retirees who want to be careful with their money.

    Today, the Magellan Fund requires no minimum investment. People can invest in the fund at any time and with any amount of money. The expense ratio is on the high side at 0.77% but the fund continues to deliver consistently good returns. Over the last year, Magellan has delivered a 49% return and provided investors with gains of 16% over three years. Founded in 1963, the Magellan Fund now has a lifetime return of 16.01%. It also pays a quarterly dividend at a 0.30% yield.

    Top holdings include Home Depot (NYSE:HD), Visa (NYSE:V) and Nvidia (NASDAQ:NVDA).

    Disclosure: On the date of publication, Joel Baglole held long positions in HD,V, AAPL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

    Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. 


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