Choose the best mutual funds for retirement.
Investing for retirement is the top goal for most investors. Whether you’re in the wealth-building phase or enjoying current retirement income, there’s a mutual fund out there for you. That said, always keep in mind your personal risk tolerance and investment goals when evaluating these retirement funds. Maintaining a diversified portfolio that includes the best mutual funds for retirement will set you up for a golden future. From leading fund managers such as Vanguard and Fidelity, here are seven of the best mutual funds for retirement.
Vanguard 500 Index Fund (ticker: VFIAX)
Fees matter when choosing a retirement fund, says Robert R. Johnson, economics and finance professor at Creighton University. “Fees are certain, and returns are uncertain,” Johnson says. On that note, this passively managed S&P 500 index fund from renowned low-fee firm Vanguard provides exposure to the 500 most important companies in the U.S. The minuscule 0.04% expense ratio is among the lowest around. Widely diversified, this is one of the best mutual funds for a core U.S. stock holding. The market capitalization weighting means there will be a tendency toward greater exposure to larger firms. The current 1.65% yield is competitive with many bonds while offering capital appreciation potential.
Fidelity Advisor Equity Growth Fund (EPGAX)
For investors seeking active management as opposed to a passive index fund investment approach, “EPGAX is a very consistent fund that has been performing well for many years,” says Steve Azoury, founder of Azoury Financial. “EPGAX can be relied upon for long-term growth.” Fidelity is known for excellent, well-managed funds. This large-cap blend fund owns 83% U.S. stocks, 15% international stocks and a smattering of cash. The investment style favors growth and momentum strategies. This retirement fund uses an earnings growth analysis model and includes top-quality firms such as Microsoft Corp. (MSFT). EPGAX boasts category-beating returns during the most recent three-, five- and 10-year periods. The 1.01% expense ratio is also reasonable for an actively managed fund.
Vanguard Balanced Index Fund (VBIAX)
This is a perfect, balanced core fund for those nearing retirement or already retired, says Scott Krase, president at CrossPoint Wealth. This low-fee balanced fund tracks the U.S. stock and U.S. taxable bond markets. There’s plenty of diversification, with more than 3,000 stocks and 8,000 bonds held. The 38% bond allocation has an average duration of 6.6 years, placing it in the intermediate-bond category. The 1.36% yield is acceptable in today’s low interest rate environment. VBIAX’s 0.07% expense ratio is among the lowest for one of the best balanced mutual funds. “This is a stable fund, which will allow investors to sleep at night,” says Krase.
Pimco Income Fund (PIMIX)
Income-oriented investors might choose this actively managed income fund. This fixed-income fund aims to maximize current income, with long-term capital appreciation being its second goal. The managers scan the globe to find quality U.S. and international bonds. With monthly dividend payouts, PIMIX is great for those seeking regular income payments. The fund has handily beat the returns of its benchmark — the Bloomberg Barclays U.S. Aggregate Bond Index — on a three-, five- and 10-year basis. Nearly 59% of the bonds mature within the next three years, while 25% mature within five to 10 years. This combination yields an effective maturity of 4.14 years and will temper losses, which might occur as interest rates rise. The 3.6% yield is great, and the 0.5% expense ratio is reasonable.
Fidelity Simplicity RMD Income Fund (FIRNX)
This is a great fund for retirees seeking U.S. and international equities along with bonds and short-term debt. The fund prioritizes high current income, followed by capital appreciation. It’s designed for investors nearing age 70 seeking to comply with required minimum distribution rules. As a “fund of funds,” FIRNX invests in several Fidelity funds. FIRNX leans toward fixed income, with 55% in bond funds, 24% in short-term assets and the remaining holdings invested in U.S. and international equity funds. The asset class exposure may be adjusted when the fund managers deem appropriate. FIRNX’s 10-year returns handily beat its benchmark and category. The fund’s 42% turnover rate and objectives make it an ideal holding in a retirement account. Its expense ratio is 0.46%.
T. Rowe Price Retirement Balanced Fund (TRRIX)
This is an exciting, conservatively balanced fund of funds. TRRIX’s objective is to achieve the highest total return with a focus on both capital growth and income. Geared toward investors in retirement, its asset allocation includes international and high-yield bonds, investment-grade bonds, international equities and U.S. equities, and some cash reserves. To capture these broad asset classes, the fund invests in more than 20 funds spanning growth, value, small-cap equities and fixed-income styles. The fund’s returns have slightly outperformed the S&P Target Date Retirement Income Index during the past 10 years and are neck and neck with its benchmark. The 29% turnover rate makes it relatively tax-efficient and the 0.5% expense ratio is low. The 12-month yield is 1.56%.
Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
If you’re in your 40s or older, this one-and-done fund is an ideal stand-alone investment portfolio. With a 60% stock and 40% bond allocation, this moderate-growth, passively managed fund is one of the best mutual funds for retirement. The first objective of VSMGX is capital appreciation, followed by a low to moderate level of income. Great for moderately conservative investors, the fund owns two stock and two bond funds and offers exposure to both U.S. and international markets. VSMGX is like a complete investment portfolio in one fund, as it’s nicely diversified. Since inception, the fund has nearly matched its underlying index in terms of performance. The low 0.13% fee and current yield of 1.97% make this an ideal retirement fund.
Seven mutual funds to consider for retirement:
— Vanguard 500 Index Fund (VFIAX)
— Fidelity Advisor Equity Growth Fund (EPGAX)
— Vanguard Balanced Index Fund (VBIAX)
— Pimco Income Fund (PIMIX)
— Fidelity Simplicity RMD Income Fund (FIRNX)
— T. Rowe Price Retirement Balanced Fund (TRRIX)
— Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
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