When selecting funds for your 401(k), simple is usually better. Actively managed funds with complicated investment strategies often underperform index funds over the long term, and they’ll charge you more to do it through higher expense ratios. Instead, for the most reliable long-term success, opt for funds that offer broad diversification at a low cost.
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This often means choosing index funds and taking a broader perspective when evaluating performance. While active funds may excel in one year, retirement is a long game that requires reliable performance over decades. For that reason, the best-performing 401(k) funds are the ones that have excelled over the past 10 or more years.
Bear in mind, however, that choosing funds based solely on performance can lead to overconcentration. For instance, many of the following mutual funds are investing in large-cap U.S. stocks because the U.S. large-cap space has outperformed over the past decade relative to other market sectors. But this could change at any point. Different sectors outperform during different market and economic conditions, so it’s important to diversify your portfolio with funds that invest in other areas of the market, including international stocks and fixed income.
One final note: Although this is not a Fidelity funds article, you will notice there are many Fidelity funds on this list. This is because Fidelity is one of the largest 401(k) providers in the nation, so many investors will have access to these funds. If your company does not work with Fidelity for its retirement plan, you may be able to find similar funds with your provider.
That said, here are 10 of the top-performing funds to include in your 401(k):
| 401(k) fund | Average annual return over the past 10 years |
| Fidelity Select Technology Portfolio (ticker: FSPTX) | 17.7% |
| Fidelity OTC Portfolio (FOCPX) | 16.63% |
| Fidelity Advisor Growth Opportunities Fund (FAGAX) | 14.76% |
| JPMorgan Large Cap Growth A (OLGAX) | 14.56% |
| Fidelity Select Health Care Portfolio (FSPHX) | 14.38% |
| Vanguard Primecap Fund Admiral Shares (VPMAX) | 13.4% |
| Fidelity 500 Index Fund (FXAIX) | 12.24% |
| Janus Henderson Enterprise Fund Class T (JAENX) | 12.38% |
| T. Rowe Price Blue Chip Growth Fund (TRBCX) | 11.8% |
| American Funds New Perspective Fund Class A (ANWPX) | 9.73% |
Fidelity Select Technology Portfolio (FSPTX)
It will likely come as no surprise to have a technology fund top the list of best-performing 401(k) funds over the past decade. The information technology sector was soaring until 2022, but even with that recent stumble, the Nasdaq Composite Index has gained almost 250% in the past decade.
FSPTX, which will become the Fidelity Enterprise Technology Services Portfolio on June 1, 2023, when it shifts its benchmark to the MSCI U.S. IMI Enterprise Technology Services 25/50 Index, has benefited from this with 17.7% average annual returns over the past 10 years. It invests in companies management believes “have or will develop products, processes or services that will benefit significantly from technological services or advancements.”
Currently only 83 companies fit that bill, with familiar names like Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) topping the list. This is a highly concentrated fund with the top 10 names accounting for nearly 70% of the portfolio, so be sure to pair it with more diversified funds.
Fidelity OTC Portfolio (FOCPX)
The investment objective of FOCPX is to seek capital appreciation, and it’s delivered with 16.63% annual returns over the past 10 years. It has accomplished this by investing nearly half the portfolio in the information technology sector. Top names include Apple, Microsoft and Amazon.com Inc. (AMZN). Unlike FSPTX, however, FOCPX has the leeway to venture outside of the technology sector, although it will always keep at least 25% of its portfolio in tech stocks.
It invests primarily in assets that trade on the Nasdaq or over-the-counter (OTC) market, which is where you’ll find more small and mid-cap companies. Since smaller companies have more room for growth than bigger names, this can be a competitive strategy for growth.
Fidelity Advisor Growth Opportunities Fund (FAGAX)
If performance is what you’re after, growth funds are your best friend. This large-growth fund has consistently delivered results over time, as FAGAX’s annualized 10-year return is 14.76%, putting it in the top quartile of its large-growth peers, according to Morningstar. The fund has a heavy domestic tilt, but it also has almost 10% in foreign equity. Currently, FAGAX is overweight in technology, communication services, energy and utilities relative to its category peers. Many of the usual large-cap names are in the top 10, including Microsoft, Google parent company Alphabet Inc. (GOOG, GOOGL) and Amazon.com.
JPMorgan Large Cap Growth A (OLGAX)
Another front-runner in the large-growth category is OLGAX. Running neck-in-neck with FAGAX, OLGAX has returned 14.56% over the past 10 years, making it another top-quartile performer in its asset class. OLGAX has an even heavier domestic tilt at nearly 97% U.S. equity and just over 2% foreign equity. It’s overweight in consumer cyclical, health care, energy and industrials but underweight in all other categories, including technology, communication services and financial services. Familiar names top the holdings list, with Apple, Microsoft and Alphabet in the top three, but these are followed by less familiar names such as pharmaceutical research and development company AbbVie Inc. (ABBV).
Fidelity Select Health Care Portfolio (FSPHX)
Another stock market sector some investors have been betting on is health care, in part due to COVID-19. FSPHX earned 14.38% average annual returns over the past 10 years. It invests at least 80% of its assets “in securities of companies principally engaged in research, development, manufacture, distribution, supply, or sale of medical equipment and devices and related technologies, companies enabling drug discovery, and companies providing information technology services primarily to health care providers,” according to the fund prospectus. This translates to holdings that include health insurers such as UnitedHealth Group Inc. (UNH) and Cigna Group (CI), biomedical and biotechnology firms such as Boston Scientific Corp. (BSX), and scientific instrument suppliers like Thermo Fisher Scientific Inc. (TMO).
Vanguard Primecap Fund Admiral Shares (VPMAX)
Vanguard Primecap is a longstanding growth fund that targets large- and mid-cap companies. Since its inception in 1984, it has focused on keeping a low turnover, which helps keep costs low. It takes a multi-manager approach, with multiple portfolio managers working independently to manage portions of the fund. The idea behind this is to provide “diversification of thought,” according to Vanguard. There are currently five managers listed on the fund, including one who has been helping manage the fund since its inception. The fund has recorded a 13.4% average annual return over the past 10 years, beating the S&P 500 by 1.15%.
Fidelity 500 Index Fund (FXAIX)
Many investors like to start their 401(k)s with an S&P 500 index fund, which allows broad, U.S. large-cap market exposure. Index funds are particularly good choices if you’re not going to be actively reviewing your account. Index funds are also very cheap, which matters for long-term holdings. FXAIX, for example, has an expense ratio of only 0.01%.
The index includes about 500 of the largest U.S. stocks that make it through the asset manager’s screen for market cap, liquidity and profitability, which gives the fund a slight quality tilt. But be sure to pair this one with a foreign fund since you’re only getting exposure to large U.S. companies. The fund has a 10-year trailing return of 12.24%.
Janus Henderson Enterprise Fund Class T (JAENX)
For optimum diversification, you want to include companies of all sizes in your portfolio. Also, as mentioned above, smaller companies often have more room to grow than large ones, which can translate to better long-term performance. It can also translate to greater risk, however, as smaller companies are more likely to go under than big names. That said, JAENX may have found the sweet spot between not-too-small and not-too-large with its top-performing, mid-cap growth portfolio. The fund is in the top quartile of its peer group’s performance for the past five, 10 and 15 years, with a trailing 10-year return of 12.38%. Its portfolio is primarily tech-based, with a healthy dose of health care, financial services and industrials, too.
T. Rowe Price Blue Chip Growth Fund (TRBCX)
For a slightly more flexible approach to large-cap stocks, consider TRBCX, which seeks long-term capital growth by investing in blue-chip growth companies. While the fund is still firmly in the large-cap growth category, the ability to shift into medium-sized companies could give the managers a leg up, as smaller companies have greater long-term growth potential. The fund has a mix of aggressive and steadily growing companies, but it seeks out high-quality companies, too, as a blue-chip fund. Among some of the top holdings are Apple and Microsoft. TRBCX has a trailing 10-year return of 11.8%.
American Funds New Perspective Fund Class A (ANWPX)
An important risk to watch out for in your 401(k) is home country bias. This happens when you invest only or predominantly in companies based in your home country. While U.S. funds may feel comfortable because of their familiarity, if the economy falls into a recession, you’ll be glad to have some foreign investments to buffer your returns.
One fund that lets you add an international flair to your portfolio is ANWPX. This fund takes a unique approach by trying to capitalize on the investment opportunities generated by changes in international trading patterns and economic and political relationships. It targets growth companies from around the world in a strategy that has paid off over the past 10 years, as the fund has sat in the top quartile of its peer group performance nearly every year. Its trailing 10-year return is 9.73% with a portfolio that is less than 49% U.S.-domiciled.
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10 of the Best-Performing 401(k) Funds originally appeared on usnews.com
Update 03/20/23: This story was published at an earlier date and has been updated with new information.
