10 Best-Performing 401(k) Funds

These 401(k) funds can give your savings a shot in the arm.

The advantages to investing in a 401(k) retirement savings account go beyond deferred taxes, especially if an investor’s employer also matches a percentage of contributions. Even limited choices of 401(k) funds can help employees pinpoint and address their investment needs, says Alec Lucas, director of fixed-income strategies at Morningstar. Too many options can lead to indecision, but even with a smaller selection to choose from, “it’s still a lot of work to do this kind of analysis,” says Wei-Yin Hu, vice president of financial research at Edelman Financial Engines. Hu says there are four main factors investors should look at when choosing funds for their 401(k): expenses, diversification across asset classes, amount of risk a fund is taking, and the appropriate benchmark to measure the fund’s performance against. Here are 10 of the best-performing funds that investors can choose for their 401(k)s.

Vanguard Institutional Index (ticker: VINIX)

Vanguard Institutional Index is one of the cheapest funds to track the broadly diversified S&P 500, according to Lan Anh Tran, an analyst at Morningstar. This makes VINIX, a passively managed fund, an excellent choice to include in a 401(k) plan. For starters, fees can eat up investors’ returns pretty quickly. VINIX has an expense ratio of only 0.035%, which means investors pay $3.50 for every $10,000 invested, putting it well below the industry average of 0.2% for passively managed funds. In addition, the broad diversification of the S&P 500 makes funds tracking that index ideal for generating overall exposure to the stock market’s diversity. The fund has 99% of its assets invested in U.S. equities, and its top five holdings are Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG, GOOGL) and Tesla Inc. (TSLA). It has a five-year average annual return of 11.4%.

Fidelity 500 Index (FXAIX)

Another great passively managed fund for 401(k) investors to look at is Fidelity 500 Index. Like VINIX, FXAIX also tracks the S&P 500. And with its top five holdings also being Apple, Microsoft, Amazon, Tesla and Alphabet, the stocks this fund holds track pretty closely with VINIX as well. The most noticeable point at which the two funds differ is in their expense ratios. FXAIX carries a mere 0.015% expense ratio compared with VINIX’s 0.035%. Although both ratios are low for the industry, investors might find this factor enough to nudge them toward the Fidelity fund over the Vanguard one. However, it’s worth keeping in mind that Morningstar rates the Vanguard parent company as “high” and ranks Fidelity slightly lower, at “above average.”

Vanguard PrimeCap (VPMCX)

An actively managed fund, Vanguard PrimeCap’s expense ratio of 0.38% is significantly greater than that of most passively managed funds. However, since many investors consider a range of 0.50% to 0.75% to be good for active funds, VPMCX still carries a relatively low fee. The difference between active management and passive management is that with active management the investment team chooses how to invest the fund’s money, and with passive management the fund tracks an index. Although expenses are often more for actively managed funds, their value lies in an ability to generate higher returns. PrimeCap has a “gold medal” analyst rating from Morningstar, its highest rating for a fund’s expected future performance, and it has an overall five-star rating based on its past performance. It holds 140 to 160 stocks chosen from five fund managers’ picks. The fund invests heavily in companies with above-average earnings growth. VPMCX has a five-year average annual return of 13.9%.

T. Rowe Price Retirement 2030 (TRRCX)

Like other target-date funds, the idea behind T. Rowe Price Retirement 2030 is to consistently reallocate the fund’s holdings with an eye to helping investors retire at a certain date. In this case, the date is 2030. The fund invests primarily in a basket of other T. Rowe Price funds, including some of the parent company’s strongest. For example, 14 of the 24 funds held in TRRCX are Morningstar medalist funds. This approach continues to earn a “high” ranking from Morningstar, and senior analyst Bobby Blue considers TRRCX to be best in class. Obviously, for younger investors, a 2030 target-date fund may not be the best option to choose for a 401(k). However, for investors looking to retire around that year, TRRCX is definitely worth a look.

BlackRock High Yield Bond Portfolio (BRHYX)

Another actively managed fund, BlackRock High Yield Bond Portfolio, has a 0.49% expense ratio. The fund has a five-star performance rating from Morningstar, and it carries a gold-medal future-performance rating from analysts. Morningstar strategist Eric Jacobson considers BRHYX “a stalwart in the high-yield universe.” The fund invests 80% of its total assets in high-yield, non-investment-grade bonds maturing in 10 years or less. High-yield bonds can be riskier investments than investment-grade bonds, which tend to be bonds rated BBB or better by Standard & Poor’s. But this hasn’t hurt BRHYX’s overall performance, and the fund also brings investors a 5.8% 30-day yield, which is significantly higher than the other funds included in this list.

Vanguard Wellington (VWELX)

With an inception date all the way back in 1929, the actively managed Vanguard Wellington, in addition to being Vanguard’s oldest mutual fund, is also the nation’s oldest balanced fund. Balanced funds, also referred to as blended funds, are composed of both stocks and bonds. Typically, the ratio is weighted more toward stocks, which usually make up between 50% and 70% of the fund. In the case of VWELX, the fund is 57.9% U.S. stocks, 6.7% foreign stocks and 32.7% fixed-income investments. This has proven to be a “successful combination” for VWELX, says Patricia Oey, Morningstar senior analyst. The fund has a five-star overall performance rating and carries a gold-medal analyst rating as well. In addition, the fund has an expense ratio of only 0.24%, which is extremely low for an actively managed fund.

American Funds American Balanced R5 (RLBFX)

Another blended fund, American Funds American Balanced R5, is weighted similarly to VWELX. However, with 53.7% of RLBFX’s assets in U.S. equities, 9.7% in foreign equities and only 27.1% in fixed-income investments, RLBFX leans slightly more toward foreign investments while maintaining a smaller bond portfolio. RLBFX has a five-star overall performance rating from Morningstar. However, it has a silver-medal rating for future performance, meaning the fund still offers advantages but doesn’t generate the same level of confidence among analysts as a gold rating. But RLBFX still ranks highly across the five pillars used to determine the medal rating: process, performance, people, parent and price. RLBFX is an actively managed fund with a 0.30% expense ratio.

Fidelity Growth Company (FDGRX)

Fidelity Growth Company’s stated main goal is capital appreciation for its investors. FDGRX’s fund manager, Steve Wymer, prefers companies in fast-growing sectors with above-average growth prospects, says Robby Greengold, Morningstar strategist. Needless to say, this strategy resulted in heavy losses at the start of 2022. However, with the help of Fidelity’s deep analyst bench to oversee the strategy’s sprawling portfolio, Wymer is uniquely positioned to successfully steer the fund. FDGRX has received five-star performance ratings from Morningstar for the past three, five and 10 years. The fund also ranks as 5 out of 5 overall from Lipper on total returns, consistent returns and expenses. FDGRX has a 0.79% expense ratio.

Janus Henderson Enterprise T (JAENX)

Janus Henderson Enterprise managers Brian Demain and Cody Wheaton look for firms that can sustain growth throughout the business cycle, focusing on durable businesses rather than less-predictable short-term growth or multiple expansion, according to Morningstar analyst Eric Schultz. This has led to one of the lowest annual portfolio turnover rates in the fund’s category. JAENX’s 0.91% expense ratio may seem like a deterrent, but Schultz points out that it’s actually in the second-cheapest quintile for the mid-cap growth fund category. The fund’s top five holdings are investment advisory service LPL Financial Holdings Inc. (LPLA), software provider SS&C Technologies Holdings Inc. (SSNC), semiconductor manufacturer ON Semiconductor Corp. (ON), software manager Constellation Software Inc. (CNSWF) and insurance provider Intact Financial Corp. (IFCZF). JAENX has a five-year average annual return of 13%.

JPMorgan Large Cap Growth A (OLGAX)

JPMorgan Large Cap Growth has the highest expense ratio of the funds included in this list, at 0.94%. Unlike with JAENX, however, this high expense ratio ranks in the middle quintile of funds from its category. The fund’s top five holdings are Apple, Microsoft, Alphabet, AbbVie Inc. (ABBV) and Deere & Co. (DE). These companies make up more than 30% of the fund’s portfolio, which is composed of an additional 64 stocks. OLGAX is a solid large-growth option, rated an overall five stars by Morningstar, and it has maintained that rating for the last three and five years. OLGAX has a five-year average annual return of 13%.

10 of the best-performing 401(k) funds:

— Vanguard Institutional Index (VINIX)

— Fidelity 500 Index (FXAIX)

— Vanguard PrimeCap (VPMCX)

— T. Rowe Price Retirement 2030 (TRRCX)

— BlackRock High Yield Bond Portfolio (BRHYX)

— Vanguard Wellington (VWELX)

— American Funds American Balanced R5 (RLBFX)

— Fidelity Growth Company (FDGRX)

— Janus Henderson Enterprise T (JAENX)

— JPMorgan Large Cap Growth A (OLGAX)

More from U.S. News

7 Best Fidelity Mutual Funds to Buy and Hold

7 Best Vanguard Funds for Retirement

7 Best Socially Responsible Funds

10 Best-Performing 401(k) Funds originally appeared on usnews.com

Update 06/24/22: This story was published at an earlier date and has been updated with new information.

Related Categories:

Latest News

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up