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All Contents © 2019The Kiplinger Washington Editors
By Nellie S. Huang, Senior Associate Editor
| November 1, 2019
How good are the mutual funds in your 401(k) plan? Choose wisely, and you might sip café au lait as you celebrate your retirement on an around-the-world cruise. Choose unwisely, and you might have to settle for the local Starbucks.
Every year, with the help of financial data firm BrightScope, which ranks 401(k) plans, we look at the 100 mutual funds with the most assets in 401(k) and other defined-contribution plans, including 403(b)s. To help you pick the best mutual funds for your 401(k), we analyze the actively managed funds among the 100 most popular options. Most of the funds are solid, some are standout and only a handful are disappointing. In the end, 30 funds, described below, won our seal of approval.
We didn't weigh in on the index funds that rank high in employer-sponsored plan assets because the art of choosing a good index fund rests on three simple questions: Which index do you want to emulate? How well has the fund done in matching that index? How much does the fund charge? We have no problem with the index funds listed in the top 100.
But assessing actively managed mutual funds is trickier. We analyzed each fund's long-term returns and year-by-year performance. We looked past raw results to examine each fund's volatility and how it fared in difficult markets. We also considered manager tenure and fees, among other factors.
Here are the 30 best mutual funds for 401(k) retirement savers, plucked out of the nation's 100 most popular options. Some of these funds might not be available in your 401(k), and some might not be suitable for your personal situation. But each of these mutual funds stands out for their quality, making it a good choice for its respective category.
Returns and data are as of Oct. 31, unless otherwise noted, and are gathered for the share class with the lowest required minimum initial investment – typically the investor share class or A share class. The share class available in your 401(k) plan may be different.
Expense ratio: 0.57%
One-year return: 11.4%
Three-year annualized return: 9.7%
Five-year annualized return: 7.6%
10-year annualized return: 10.3%
Rank among the top 401(k) funds: #37
Best for: Conservative investors with both preservation of capital and growth in mind.
Like most so-called balanced funds, American Funds American Balanced typically invests 60% of assets in stocks and 40% in bonds. The 10-manager team can dial risk up or down depending on market conditions, but at any given time, the fund must have at least 50% in stocks or at least 25% in bonds. At last report, American Balanced held 61% in stocks, 34% in bonds and 5% in cash.
On the stock side, the managers focus on blue-chip, dividend-paying companies, including Microsoft (MSFT) and Home Depot (HD).
Investment-grade corporates, Treasuries and government-guaranteed mortgage debt fill the bond side. The fund yields 1.6%.
Type: Foreign stock
Expense ratio: 0.75%
One-year return: 16.0%
Three-year annualized return:13.9%
Five-year annualized return: 9.8%
10-year annualized return: 10.9%
Rank among the top 401(k) funds: #57
Best for: Investors who prefer all-in-one exposure to U.S. and foreign stocks.
American Funds New Perspective invests roughly half its portfolio in U.S. stocks and most of the rest in foreign shares. That has been a good formula for world funds lately, given the extraordinary bull market in U.S. stocks and relative lackluster returns abroad.
ANWPX has outdone its peers, too. In nine of the past 11 calendar years, including so far in 2019, New Perspective has returned more than the average return for its competitors: mutual funds that invest in large-cap stocks all over the world.
Seven managers divide management of the bulging $92 billion in assets between them and pick stocks on their own. Long-term growth is the main objective, but the fund's secondary aim is to invest in companies that have the potential to pay dividends in the future.
Type: U.S. stock
Expense ratio: 0.59%
One-year return: 13.0%
Three-year annualized return: 13.9%
Five-year annualized return: 9.7%
10-year annualized return: 13.0%
Rank among the top 401(k) funds: #56
Best for: Low-risk investors.
Discipline governs this growth-and-income fund. Among the numerous investing rules that American Funds Washington Mutual Investors' managers must abide by: Constituents of Standard & Poor's 500-stock index must make up 90% of the fund, companies must have a steady history of dividend payments, and there can be no tobacco or alcohol producers.
AWSHX's quirky approach holds it back from the kind of outsize returns that some large-company funds can deliver, but Washington Mutual is a decent performer. Over the past decade, its 13.0% annualized return beats 62% of its peers: mutual funds that invest in large companies with both growth and value characteristics. But it trails the 13.6% gain in the S&P 500. The fund yields 1.7%.
Expense ratio: 0.53%
One-year return: 8.0%
Three-year annualized return: 9.4%
Five-year annualized return: 7.1%
Rank among the top 401(k) funds: #83
Best for: Investors in search of a balanced fund who can also tolerate above-average volatility
Like its hybrid fund peers, Dodge & Cox Balanced typically holds roughly 60% of its assets in stocks and the rest in bonds. There's some leeway in the mix, too, such as the ability to hold preferred stocks. It's partly that, and the stock and bond picks, that give DODBX its added performance relative to its peers, and extra volatility, too.
Dodge & Cox Balanced tends to tilt its portfolio toward the stock side than its peers. At the moment, for instance, the holds 65% of its assets in stock; the typical balanced fund holds 58%. And on the bond side, corporate debt (14% of assets) exceeds that of its typical peer by 4 percentage points.
The fund's nine bond managers and 10 stock managers are decidedly value-oriented, and occasionally contrarian, which can require patience as some investment theses play out. But Dodge & Cox Balanced has been a strong performer over time. Since 2009, it has ranked among the top half of its peer group in all but three calendar years, 2011, 2015 and 2017. Over the past 10 years, DODBX's 10.3% return beats 93% of its competitors.
Expense ratio: 0.42%
One-year return: 10.4%
Three-year annualized return: 4.0%
Five-year annualized return: 3.7%
10-year annualized return: 4.5%
Rank among the top 401(k) funds: #45
Best for: Income investors.
A high rate of income is Dodge & Cox Income's main objective, and on that, it delivers. DODIX's 2.7% yield exceeds the 2.2% average yield for intermediate-term core bond funds.
The team of nine managers currently keeps a relatively balanced portfolio of government-guaranteed debt, including mortgage-backed securities and Treasuries, with high-quality corporate bonds. Low yields may crimp near-term fixed-income returns, the managers say, but they remind investors that bonds play a vital defensive role in diversified portfolios.
The fund's 15-year annualized return ranks among the top 26% of its peer group.
Expense ratio: 0.63%
One-year return: 7.2%
Three-year annualized return: 5.9%
Five-year annualized return: 1.7%
10-year annualized return: 5.6%
Rank among the top 401(k) funds: #27
Best for: Buy-and-hold investors.
The past decade hasn't been good for international stocks, and bargain-priced shares fared even worse. But Dodge & Cox International Stock, which invests in foreign firms trading at discount prices, has outpaced its benchmark, MSCI EAFE Index, in six of the past 11 calendar years.
The fund's value tilt makes it a tad contrarian at times: European financial stocks and health-care shares comprise a big piece of the 69-stock portfolio. And the fund's volatility is high, so investors should be willing to hang on when the ride gets bumpy.
Expense ratio: 0.52%
One-year return: 6.5%
Three-year annualized return:12.3%
Five-year annualized return: 8.6%
10-year annualized return: 12.6%
Rank among the top 401(k) funds: #10
Best for: Patient buy-and-hold investors.
Ten Dodge & Cox Stock managers analyze companies with a three- to five-year time horizon in mind. They steer toward well-established firms with attractive long-term prospects that trade at bargain prices. At the moment, top holdings include the likes of Charles Schwab (SCHW) and Capital One Financial (COF).
At times, their investment thesis can take years to play out, which can drag on returns. But patient investors will find the fund typically delivers over the long haul.
Over the past decade, DODGX's 12.6% annualized return bests 86% of its peers: mutual funds that invest in value-priced large companies.
One-year return: 12.2%
Three-year annualized return: 10.7%
Five-year annualized return: 7.5%
10-year annualized return: 10.1%
Rank among the top 401(k) funds: #50
Best for: Moderate-risk investors looking for an all-in-one, 60% stock, 40% bond portfolio.
Reasonable risk-taking is part of Fidelity Balanced's mandate. The fund invests 60% of assets in stocks, for growth, and 40% in bonds, for stability and income.
Balanced has been a tad more volatile than its peers – mutual funds that invest 50% to 70% of assets in stocks – but it makes up for it in long-haul returns. The fund's 10-year annualized return ranks among the top 8% of its peer group.
Robert Stansky is FBALX's maestro. He makes the broad calls on how much of the portfolio sits in stocks and bonds. A team of sector specialists pick the stocks, which right now include Microsoft, Apple (AAPL) and Amazon.com (AMZN) at the top. Bond guru Ford O'Neil steers the debt side. The fund yields 1.5%.
Expense ratio: 0.8%
One-year return: 14.3%
Three-year annualized return: 19.3%
Five-year annualized return: 13.2%
10-year annualized return: 16.1%
Rank among the top 401(k) funds: #66
Best for: High-octane growth investors.
Fidelity Blue Chip Growth has only lagged the S&P 500 in eight of the past 11 calendar years, which includes slight underperformance so far in 2019. Still, the market has lately favored the kinds of businesses the fund prefers: fast-growing firms with dominant franchises.
Manager Sonu Kalra mixes high-quality, established firms with nascent companies in his roughly 330-stock portfolio. At times, he holds stakes in private firms before their initial public offering, such as Uber Technologies (UBER). And he's known to take big bets if he feels strongly about a firm's prospects. Google parent Alphabet (GOOGL), Amazon.com and Apple comprised nearly 20% of the FBGRX's assets recently.
Expense ratio: 0.82%
One-year return: 12.4%
Three-year annualized return: 16.6%
Five-year annualized return: 11.9%
10-year annualized return: 14.1%
Rank among the top 401(k) funds: #4
Best for: Growth investors in search of steady results.
Over the course of nearly three decades at the helm, Fidelity Contrafund manager Will Danoff has delivered spectacular results, helping longtime shareholders fund cushy retirements.
Danoff hunts down companies with fast-growing earnings. When he likes a company, he holds on. The fund's 32% annual turnover implies a holding period of roughly three years. Berkshire Hathaway (BRK.B), a top holding, has in the fund since 2002.
FCNTX is enormous, with nearly $116 billion in assets, but that hasn't held Danoff back. Over the past 10 years, Contrafund has gained 14.1% annualized, beating the 13.6% return in the S&P 500.
Expense ratio: 0.85%
One-year return: 12.9%
Three-year annualized return: 19.9%
Five-year annualized return: 14.0%
10-year annualized return: 16.8%
Rank among the top 401(k) funds: #22
Best for: Aggressive-growth investors prepared for a bumpy ride.
If Fidelity Growth Company is available in your 401(k) plan, buy shares. The fund is a winner, and it is closed to new investors outside of 401(k) plans.
Manager Steve Wymer hunts for firms with good long-term growth prospects. Many of the stocks are names you know: Lululemon Athletica (LULU), Salesforce.com (CRM), Visa (V). But nearly a quarter of the fund's assets is invested in smaller companies. That adds to FDGRX's volatility.
Even so, Wymer's 15-year record, 12.4% on average per year, beats the S&P 500 and 97% of all mutual funds that invest in large, growing companies by wide margins.
One-year return: 6.9%
Three-year annualized return: 9.6%
Five-year annualized return: 6.5%
10-year annualized return: 11.6%
Rank among the top 401(k) funds: #40
Best for: Investors looking for a satellite position to spice up core holdings.
At Fidelity Low-Priced Stock, prospective stocks must trade for $35 or less. Lead manager Joel Tillinghast and five comanagers use the low-price bar to find good values in small-cap stocks and out-of-favor larger firms. The fund has an outstanding long-term record under Tillinghast. But since 2011, when the first comanagers came aboard, FLPSX has lagged the broad market.
Even so, Low-Priced Stock is worth a look. Tillinghast is a master stock picker. The fund is unique, and not easily compared with a benchmark. It holds shares in firms of all sizes, for starters, and it has a 38% slug of assets in foreign stocks such as Canadian grocer Metro Inc. (MTRAF) and British clothing company Next plc (NXGPY).
Expense ratio: 1.03%
One-year return: 13.2%
Three-year annualized return: 17.7%
Five-year annualized return: 12.4%
Rank among the top 401(k) funds: #39
Best for: Aggressive-growth investors.
Managers at Harbor Capital Appreciation look for fast-growing firms in good financial health that dominate their businesses. Think Amazon.com, Mastercard (MA) and Salesforce.com.
Four managers run HCAIX, but Spiros "Sig" Segalas, a veteran stock picker, anchors the team. You should expect above-average volatility, but the reward is above-average returns. Over the past five years, Capital Appreciation was 8% more volatile than the average large-cap growth fund, but its annualized return was 13% better than that of its peers.
Expense ratio: 0.76%
Three-year annualized return: 8.0%
10-year annualized return: 11.2%
Rank among the top 401(k) funds: #75
Best for: Investors looking for a low-risk dividend-stock fund.
Within Invesco Diversified Dividend, a quartet of managers led by Meggan Walsh look for financially healthy companies with a strong presence in their industry that can sustain and increase dividend payouts over time.
This fund probably won't beat the S&P 500, but it will keep up. And perhaps more important to some investors, it tends to hold up better in down markets. In 2008, LCEIX lost 26.8%, which was more than 10 percentage points better than the S&P 500's lost. However, over the past decade, its 11.2% annualized return has lagged the index's 13.6%.
You won't see Amazon.com, Apple, or even Microsoft in this 70-stock portfolio. Recent top holdings include the Hartford Financial Group (HIG), General Mills (GIS) and Entergy (ETR), a utility company. The fund yields 2.2%.
Expense ratio: 1.26%
One-year return: 18.0%
Three-year annualized return: 9.2%
Five-year annualized return: 2.9%
10-year annualized return: 6.0%
Rank among the top 401(k) funds: #72
Best for: Investors seeking emerging-markets exposure.
Despite a weak decade for emerging-markets stocks, Invesco Oppenheimer Developing Markets manager Justin Leverenz has delivered a 6.1% annualized 10-year return, which wallops the 4.0% return in the MSCI Emerging Markets Index.
ODMAX tops its peers, too, and fairly consistently. In all but three of the past 11 calendar years, including so far in 2019, Oppenheimer Developing Markets has beaten the average fund in its peer group: diversified emerging-markets stock funds. Of course, stashing one-fourth of the fund's assets in developed-country stocks has helped. But two such holdings, Glencore (GLNCY), a British-Swiss mining company, and French luxury goods behemoth LVMH Moet Hennessey Louis Vuitton (LVMUY), both have businesses that log significant growth in emerging markets.
Invesco Oppenheimer Developing Markets is closed to new investors, but that rule doesn't apply to 401(k) investors.
Expense ratio: 0.91%
One-year return: 19.7%
Three-year annualized return: 18.4%
10-year annualized return: 15.8%
Rank among the top 401(k) funds: #93
Best for: All investors looking for midsize company stock exposure
This fund is a winner. Over the past three, five and 10 years, Janus Henderson Enterprise has delivered above-average returns with well-below-average risk. It holds steadier than its peers in down markets and outperforms or keeps pace when stocks are rising.
Two managers, Brian Demain and Philip Cody Wheaton, look for firms with durable growth rates that can be sustained through an entire business cycle. Global Payments (GPN), Constellation Software (CNSWF) and Cooper Cos. (COO) are among the fund's top holdings.
JAENX is closed to new investors, so if it's offered in your 401(k) plan, you should load up on shares there.
Expense ratio: 0.94%
One-year return: 15.5%
Three-year annualized return: 20.9%
Five-year annualized return: 13.3%
10-year annualized return: 15.6%
Rank among the top 401(k) funds: #92
Best for: Aggressive growth investors willing to take on above-average risk.
JPMorgan Large Cap Growth shines during bull markets and when shares in growing companies are rallying because manager Giri Devulapally courts momentum. He favors large companies with competitive advantages and buys when the stocks are rising in price. Microsoft, Mastercard, Amazon.com, Alphabet and PayPal (PYPL) are among the fund's top holdings.
OLGAX has been more volatile than the S&P 500 over the past five and 10 years, but it also has outpaced the index over those periods, too. In down markets, the fund typically lags the S&P 500, but not its typical peer; that might give the fund an edge over the long haul. In 2008, for instance, JPMorgan Large-Cap Growth lost 39.7% – more than the 37.0% slip in the S&P 500, but still better than 58% of its peers.
Expense ratio: 0.67%
One-year return: 11.5%
Three-year annualized return: 3.3%
Five-year annualized return: 3.0%
10-year annualized return: 4.8%
Rank among the top 401(k) funds: #21
Best for: Income investors seeking a core bond holding.
In 2016, the managers at Metropolitan West Total Return Bond grew more defensive and began to shore up the fund with high-quality bonds – Treasuries, as well as mortgage bonds and bundles of student loans backed by Uncle Sam. They were early, which hurt the fund's returns, as safer fare lagged and riskier debt outperformed. MWTRX's five-year annualized return falls just short of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index.
However, over the past 10 years, Metropolitan West Total Return Bond beats the bogey as well as 81% of its peers: intermediate-term bond funds. Recent returns have been stronger, too, thanks in part to a rally in Treasury bonds. The fund yields 2.25%.
Expense ratio: 1.02%
One-year return: 14.0%
10-year annualized return: 12.7%
Rank among the top 401(k) funds: #95
Best for: Investors looking for a defensive fund with small-and midsize-company exposure
Neuberger Berman Genesis, one of the few small-company stock funds to appear on this list, shines in troubled markets. That's an added plus, considering that small-company shares tend to be the most volatile U.S. stock group.
Even so, NBGNX's four managers tend to hold on to its winners, so more than half of its portfolio is devoted to mid-cap stocks. The quartet favor firms with strong balance sheets, competitive advantages, moderate mid-teen growth rates, and shares that are priced at a discount relative to the small-company index, the Russell 2000.
Though the recipe means Genesis typically doesn't top the charts in big rallies, the fund's ability to weather bad markets helps over time. Thanks in part to holding up better than the Russell 2000 in 2018 and 2015, Genesis's 9.8% five-year annualized return outpaces more than 65% of its peers – mutual funds that invest in growing small-company stocks – and the Russell 2000.
One-year return: 12.7%
Three-year annualized return: 4.5%
Five-year annualized return: 4.1%
10-year annualized return: 5.3%
Rank among the top 401(k) funds: #77
Best for: Income investors who can tolerate above-average volatility.
Don't expect PGIM Total Return Bond to behave like the ubiquitous high-quality Bloomberg Barclays U.S. Aggregate Bond Index. The fund, formerly known as Prudential Total Return Bond, sports a portfolio that bears little resemblance to the benchmark. It holds a little more than 40% of assets in mortgage- and asset-backed securities, both of which are tiny components of the Agg benchmark. PDBAX has been roughly 10% more volatile, too, than the index over the past three and five years.
The risk paid off well, however. Over the past five years, PGIM Total Return Bond returned 4.1%, which beats 95% of its peers – intermediate-term core bond funds – and the 3.2% average annual gain in the Agg index.
Expense ratio: 0.7%
One-year return: 14.4%
Three-year annualized return: 19.4%
Five-year annualized return: 13.8%
10-year annualized return: 16.2%
Rank among the top 401(k) funds: #32
Best for: Aggressive investors with long time-horizons.
Only a few actively managed funds consistently beat the broad stock market. T. Rowe Price Blue Chip Growth, a Kip 25 member, is one of them.
Manager Larry Puglia fills his portfolio with established companies that boast strong free cash flow (cash profits after capital outlays), above-average earnings growth and smart executives at the top. A big chunk of the fund's $65 billion in assets sits in technology, health-care and consumer-oriented firms.
TRBCX holds roughly 130 stocks and has a turnover rate of 27%, which is half that of its peers: mutual funds that invest in large, growing companies.
Expense ratio: 0.66%
Three-year annualized return: 17.5%
Five-year annualized return: 12.7%
10-year annualized return: 15.3%
Rank among the top 401(k) funds: #47
Best for: Investors in search of growth without sacrificing stability.
T. Rowe Price Growth Stock is a solid large-company growth fund. Manager Joe Fath took over in 2014. Since then, the fund has outpaced its large-growth peers and the S&P 500 with a 12.2% annualized return.
Fath likes to keep a portfolio of roughly 80 stocks, though he has 91 at the moment. He favors firms with strong cash flow and above-average profit growth, but he also likes firms that can withstand an economic slowdown thanks to good earnings momentum or a solid, lucrative niche in their industry.
At last report, Amazon.com, Alphabet and Facebook (FB) were among PRGFX's biggest holdings.
Expense ratio: 0.56%
Five-year annualized return: 14.5%
10-year annualized return: 16.4%
Rank among the top 401(k) funds: #59
Best for: Investors with long time horizons.
T. Rowe Price Institutional Large Cap Growth has a steep $1 million initial investment requirement for most investors. But 401(k) investors who have it in their plan can buy shares for no minimum.
Manager Taymour Tamaddon takes an active role. In the second half of 2018, he "inched up" his cash position, according to Morningstar fund analyst Katie Rushkewicz Reichart, which helped cushion the fund a little during the bear-like correction of the S&P 500.
Tamaddon is relatively new to TRLGX – he took over at the start of 2017 – but he has performed swimmingly so far. The fund has returned 21.1% annualized since he came on, far ahead of the 13.9% return by the S&P 500.
One-year return: 15.9%
Three-year annualized return: 16.4%
Five-year annualized return: 12.2%
10-year annualized return: 15.4%
Rank among the top 401(k) funds: #49
Best for: Investors seeking exposure to growing midsize companies.
Midsize-company stocks don't fetch as much attention as their large and small brethren do, but T. Rowe Price Mid-Cap Growth is hard to overlook. Over the past one, three, five and 10-year periods, the fund has outpaced the S&P 500 and the S&P MidCap 400 – with less volatility than the average midsize-company stock, too.
Manager Brian Berghuis likes fast-growing companies that trade at a reasonable price. At last report, medical-device makers Cooper Companies and Teleflex (TFX), as well as Ball (BLL), known for its ubiquitous jars, were among the biggest holdings. RPMGX is closed to new investors, but this rule doesn't apply if the fund is in your 401(k) plan.
Expense ratio: 0.27%
One-year return: 13.1%
Three-year annualized return: 12.3%
Five-year annualized return: 9.4%
10-year annualized return: 13.1%
Rank among the top 401(k) funds: #62
Best for: Stock investors looking for a smooth ride.
Consistency is Vanguard Equity Income's hallmark. Over the past three, five and 10 years, Equity Income, a Kip 25 member, has delivered above-average returns with below-average risk relative to its peers: mutual funds that invest in large, bargain-priced companies.
A focus on dividend payers helps. So does having the same managers in place for more than a decade. Wellington Management's Michael Reckmeyer runs two-thirds of the assets; Vanguard's in-house stock-picking group manages the rest. They manage a portfolio of about 200 companies, including JPMorgan Chase (JPM) and Verizon Communications (VZ). The fund yields 2.7%.
Expense ratio: 0.20%
One-year return: 8.4%
Three-year annualized return: 2.1%
Five-year annualized return: 2.1%
10-year annualized return: 3.1%
Rank among the top 401(k) funds: #74
Best for: Inflation hedgers.
Vanguard Inflation-Protected Securities is a solid fund that delivers on its objective to provide inflation protection. It invests in TIPS, or Treasury Inflation-Protected Securities. These bonds have fixed maturities and coupon rates, but the principal value adjusts with inflation.
But these days, inflation expectations are low. As a result, these types of bonds aren't paying much income, which is the fund's secondary objective. At last report, the fund yields, just 0.2%.
Even so, there's always a risk that the price of goods and services will increase – or that a fear of inflation could emerge. That's good reason to have a small slice of TIPS in your portfolio "as ballast and a diversifier," Vanguard economist Joe Davis says.
Expense ratio: 0.45%
Three-year annualized return: 12.9%
Five-year annualized return: 7.9%
10-year annualized return: 8.3%
Rank among the top 401(k) funds: #41
Best for: Investors looking for exposure to international stocks.
Every diversified portfolio needs exposure to foreign stocks, and Vanguard International Growth is a worthy choice. The fund beats its benchmark, the MSCI All Country World Index (ACWI) ex USA Index, in all but two calendar years since the start of 2008 (2014 and 2016).
Just be prepared for some volatility. International Growth is packed with fast-growing tech firms such as China's Tencent (TCEHY) and Alibaba (BABA). An outsize 17% of VWIGX's assets is invested in internet and catalog retail companies, which is far more than the typical 3% to 4% of assets in the typical foreign large growth stock fund. But in the past, the reward has been worth the risk.
Expense ratio: 0.38%
One-year return: 10.8%
Three-year annualized return: 16.7%
Five-year annualized return: 12.0%
10-year annualized return: 15.0%
Rank among the top 401(k) funds: #7
Best for: Aggressive investors in for the long haul.
Vanguard Primecap is a top choice among retirement savers, and for good reason. The large-company stock fund, which is closed to new investors outside of 401(k) plans, is a stalwart.
Though VPMCX's performance over the past 12 months lags its peer group, we think that's an aberration. Over the long haul, this fund has been a star. Its 15-year annualized return beats the S&P 500.
Five stock pickers from Primecap Management look for out-of-favor companies that have a catalyst for growth. And they'll hold for as long as the company is performing well, typically for more than a decade. Adobe Systems (ADBE) and Southwest Airlines (LUV) shares have been in the fund since the early 1990s.
Expense ratio: 0.23%
One-year return: 13.8%
Three-year annualized return: 7.3%
Five-year annualized return: 6.3%
10-year annualized return: 8.1%
Rank among the top 401(k) funds: #76
Best for: Conservative investors who want to tilt heavily toward bonds, but still maintain some stock exposure.
Vanguard Wellesley Income must invest about two-thirds of assets in bonds, and one-third of assets in stocks. The fund's managers have some wiggle room, but they must stick within a range. Over the past five calendar years, for instance, the fund's allotment to stocks has ranged as high as 38.5% of assets and as low as 36%.
Wellington Management's Michael Reckmeyer takes charge of the stock side, zeroing in on large-company stocks – such as JPMorgan Chase and Cisco Systems (CSCO) – that pay a dividend yield above that of the S&P 500. Wellington's Loren Moran and Michael Stack manage the bond side. They tend to skew more toward high-quality corporate bonds (roughly 70% of the bond portfolio at last report). Much of the rest of its bond portfolio is invested in government debt (15%) and securitized bonds (7%). The fund yields 2.6%.
Given its stock-and-bond exposure, VWINX tends to hold up well in bad markets, whether that's on the stock or bond side. In 2008, for instance, when the S&P 500 dropped 37%, Wellesley Income lost just 9.8% (that same year, Bloomberg Barclays U.S. Aggregate Bond index gained 5.2%). And in 2013, when the broad bond index fell 2.0%, Wellesley Income gained 9.2%, lifted in part by a whopping 32% rally in the U.S. stock market.
Expense ratio: 0.25%
One-year return: 14.6%
Three-year annualized return: 11.0%
Five-year annualized return: 8.1%
10-year annualized return: 10.0%
Rank among the top 401(k) funds: #9
Best for: Investors looking for a low-cost fund that holds stocks and bonds.
Vanguard Wellington, a Kiplinger 25 fund since 2016, holds about two-thirds of the fund's assets in stocks – mostly large-company dividend payers – and one-third in high-quality bonds.
Over the past 10 years, VWELX has beaten 91% of its competitors: mutual funds that allocate 50% to 70% in stocks. Some recent small shifts among the managers, who work at the Boston-based firm Wellington Management, have us watching the fund more closely. But the super-low expense ratio is a big draw, and the fund yields a robust 2.4%.