7 of the Best 401(k) Funds for Millennials

Top retirement funds for millennials.

There’s an old saying that time is money. For millennials saving for retirement, time is on their side when it comes to making money with long-term investments in the stock market. Born in the early 80s through the mid-90s, this generation can weather market volatility better than investors closer to retirement. Millennials can even be well-served by market downturns because dips offer buying opportunities. For millennials considering stock market investing, it’s important to also keep living expenses, student debt and emergency savings in mind when trying to balance personal finances. Here are seven of the best 401(k) funds for millennials saving for retirement.

Schwab S&P 500 Index Fund (ticker: SWPPX)

The most important step for a younger generation of investors who might have 30 to 35 years of time for investing is to just get started, says Pablo Alvarado, independent financial advisor with LPL Financial. The second most important step is to invest often. For millennials just getting started in investing who perhaps don’t have much money to set aside for the stock market, Alvarado recommends going with a simple S&P 500 index fund such as the Schwab S&P 500 Index Fund. “It’s so simple, so easy,” Alvarado says. The fund comes with an expense ratio of 0.2% and a five-year annualized total return of more than 12%, according to Morningstar.

Vanguard Total Stock Market Index Fund (VTSMX)

Faron Daugs, CEO of Harrison Wallace Financial Group, recommends younger investors build a core portfolio centered around a total stock index fund such as the Vanguard Total Stock Market Index Fund. With 50% in this fund, investors can get a good flavor for how the broad stock market reacts at different times, he says. Total stock market index funds tend to be weighted by market capitalization, meaning the biggest companies have the biggest percentages of the fund’s components, Daugs says. That means, in addition to diversification, investors still get decent exposure to top companies such as Amazon.com (AMZN), Apple (AAPL) and Microsoft (MSFT). The fund’s expense ratio is 0.14% and it boasts a five-year annualized total return of more than 11%, according to Morningstar.

Vanguard FTSE Emerging Markets ETF (VWO)

Emerging-market investments often fall on the higher-risk, higher-reward end of the spectrum that millennial investors might want to consider given their longer investing time horizons. Aggressive savers interested in investing in exchange-traded funds may also consider the Vanguard FTSE Emerging Markets ETF. To be sure, investing in emerging markets can be risky, and those considering it should understand how fluctuations in international currency rates and commodities prices can affect the economies of developing nations. To keep overall portfolio risks low when investing in emerging markets, consider having them represent a relatively small portion of investments. VWO’s expense ratio is 0.1% and it comes with a five-year annualized total return of more than 5%, according to Morningstar.

Fidelity Advisor Technology Fund (FATIX)

Mike Scarborough, CEO of Oak Wealth Partners, says a core component in a millennial portfolio should be invested in the technology sector, which he sees continuing to expand over the years. He cautions, however, that while millennial investments should be tech-centric, the tech portion should not be to the detriment or exclusion of other important investments. For exposure to the technology sector, Scarborough points to the Fidelity Advisor Technology Fund, which holds companies like Apple and PayPal (PPYL). The fund has an expense ratio of 0.76% and a five-year annualized total return of more than 25%, according to Morningstar.

Amplify Online Retail ETF (IBUY)

In addition to a total market fund, Daugs recommends investors put around 10% of their portfolio into a more aggressive specialty fund to help potentially boost their portfolio returns above what the market is doing. One of the funds he uses frequently is the Amplify Online Retail ETF, which counts Etsy (ETSY) and Peloton Interactive (PTON) among its top holdings. It’s a fund that allows younger people to invest in things they believe in and use, Daugs says. E-commerce certainly isn’t going anywhere anytime soon. The fund’s expense ratio is 0.65% and it has a three-year annualized total return of more than 35%, according to Morningstar.

First Trust Nasdaq Cybersecurity ETF (CIBR)

With the pandemic accelerating the shift toward remote working, learning and playing, as well as how much people shop online, it seems clear that internet-based technology has never been more important. With that comes a growing need for cybersecurity. Daugs points to the First Trust Nasdaq Cybersecurity ETF as a fund focusing on cybersecurity and another potential specialty 401(k) investment for millennials, especially with the accelerated shift to technology brought on by the virus. Top holdings include Broadcom (AVGO) and Palo Alto Networks (PANW). The fund comes with an expense ratio of 0.6% and has a five-year annualized total return of more than 12%, according to Morningstar.

First Trust Cloud Computing ETF (SKYY)

For investors looking for stocks for the long haul, Peter Creedon, CEO of Crystal Brook Advisors, says cloud computing and storage companies are among those that could ride longer-term trends and end up standing the test of time and even thriving in the future. In addition to cloud computing, those trends also include artificial intelligence and technology that facilitates mobile work. One of the funds Creedon likes for cloud computing and storage is the First Trust Cloud Computing ETF, which holds leading tech names such as Microsoft and Shopify (SHOP). SKYY has an expense ratio of 0.6% and a five-year annualized total return of more than 20%, according to Morningstar.

Seven best 401(k) investments for millennials:

— Schwab S&P 500 Index Fund (SWPPX)

— Vanguard Total Stock Market Index Fund (VTSMX)

— Vanguard FTSE Emerging Markets ETF (VWO)

— Fidelity Advisor Technology Fund (FATIX)

— Amplify Online Retail ETF (IBUY)

— First Trust Nasdaq Cybersecurity ETF (CIBR)

— First Trust Cloud Computing ETF (SKYY)

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7 of the Best 401(k) Funds for Millennials originally appeared on usnews.com

Update 08/12/20: This story was published at an earlier date and has been updated with new information.

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