With investing, as with most things in life, cost matters. Every dollar you pay in fees on your investments is a dollar that isn’t going toward generating returns on your money. Fewer expenses mean higher earning power and more money in your pocket to invest.
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One often overlooked fee on some mutual funds is sales loads, or commissions paid to the advisor or broker who sells you the fund. Sales loads can be applied when you buy a fund, called front-end sales loads, or when you sell your shares, called back-end sales loads, and can be as high as 8.5% of your investment.
To keep costs low when investing in mutual funds, look for “no-load mutual funds,” which won’t have sales charges. However, some funds may have a sales load at certain brokers but not others, so it’s important to look closely before investing.
Note that even no-load mutual funds may still have expense ratios, which represent the amount of invested capital that goes toward running the fund. But these, too, can be minimized with savvy shopping.
What follows are six of the best no-load mutual funds. Each has earned five stars from Morningstar analysts.
| Fund | Expense ratio |
| Fidelity Select Semiconductors Portfolio (ticker: FSELX) | 0.69% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% |
| Dodge & Cox Income (DODIX) | 0.41% |
| Vanguard Wellesley Income Fund (VWINX) | 0.23% |
| T. Rowe Price Capital Appreciation (PRWCX) | 0.72% |
| American Funds New World F2 (NFFFX) | 0.68% |
Fidelity Select Semiconductors Portfolio (FSELX)
The Fidelity Select Semiconductors fund invests primarily in companies that design, manufacture or sell semiconductors or similar electronic components. The fund is nearly 84% invested in semiconductor companies, with over 86% of investments based in the U.S.
“This fund is great for long-term investors that are trying to accumulate wealth and build up the biggest nest egg possible,” says Ron Tallou, investment advisor representative and founder and owner of Tallou Financial Services in Troy, Michigan.
FSELX has returned more than 25.5% over the past 10 years and more than 34% in the past five years.
While past performance is not an indicator of future results, it’s “safe to say that semiconductors are here to stay given that much of the tech today is controlled by chips,” Tallou says. “It is an industry that is still growing, so the equities inside can still appreciate, but be ready to hold on to this one. With high annual returns it can also drop in a hurry in a down market.”
Fidelity 500 Index Fund (FXAIX)
If you want something a bit less niche, the Fidelity 500 Index Fund is a great pick. It’s an S&P 500 fund, so you’ll gain exposure to 500 of the largest publicly traded companies in the U.S. This entails fan favorites like Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN).
What sets FXAIX apart from all the other S&P 500 funds is largely cost, with a rock-bottom expense ratio of 0.015%. For an even cheaper large-cap fund that invests in many of the same companies, you could also consider the Fidelity Zero Large Cap Index Fund (FNILX), which has no expense ratio and gets four stars from Morningstar.
Dodge & Cox Income Fund (DODIX)
Investors who want to add fixed income to their portfolios may like DODIX. Designed to be a core fixed-income fund, DODIX provides diversified exposure to investment-grade bonds issued by governments, municipal agencies and corporations, as well as mortgage and asset-backed securities.
“This strategy’s success owes to its relatively patient and at-times contrarian approach to investing,” writes Morningstar senior analyst Sam Kulahan. “They tend to favor corporates, noting that the yield advantage these securities offer is an important contributor to total returns over time, and they run a fairly compact, mostly cash-bond portfolio.”
The fund uses the Bloomberg U.S. Aggregate Bond Index as a benchmark, but the managers aren’t afraid to deviate from this in their active management. This can be seen in the credit quality and sector deviations between the two. For example, DODIX has about 58% AA-rated bonds compared to more than 72% in the index. DODIX also holds almost 3.5% BB-rated bonds and 3.2% B-rated bonds, while the index doesn’t drop below a BBB rating. DODIX also leans far heavier on securitized assets and corporate bonds than the index.
You won’t pay much of a premium for this active management, however, thanks to the fund’s below average expense ratio of 0.41% relative to the category average of 0.55%, according to Morningstar. It also offers a sweet 4.6% SEC yield with distributions each quarter.
[READ: 5 Best Charles Schwab Money Market Funds]
Vanguard Wellesley Income Fund (VWINX)
Another great pick for income investors is the Vanguard Wellesley Income Fund, which also happens to be one of the longest-running mutual funds, as it debuted in 1970.
“Vanguard Wellesley Income’s extensive resources and competent team run a disciplined and time-tested approach for a competitive fee,” writes Morningstar associate analyst Nour Al Twal, who calls VWINX simply “an excellent choice.”
It uses a fixed-income heavy allocation to generate current and future income with nearly two-thirds of the portfolio in bonds and the remainder in stocks. This has resulted in a tidy 4.08% 30-day SEC yield as of Dec. 31.
“The portfolio has various defining elements compared to its Allocation — 30% to 50% Equity Morningstar Category peer group, including a large-cap value tilt, a home bias and a fixed-income sleeve made up entirely of investment-grade debt,” Al Twal writes.
It also boasts an expense ratio 0.23% below its category average, though you’ll need to invest at least $3,000 as an initial purchase.
T. Rowe Price Capital Appreciation (PRWCX)
Morningstar Director Jason Kephart calls PRWCX’s lead manager, David Giroux, “one of the top investors in the industry.”
In his nearly 18 years as a fund manager, Giroux has “has racked up an impressive record over that time, driven by his ability to identify and capitalize on his contrarian views at both the individual company level and more broadly at the sector level,” Kephart writes. “He’s easily outpaced the category index over his tenure as lead.”
PRWCX’s value investment strategy to prevent sharp declines leads to a moderate portfolio of about 62% stocks, mostly from U.S. companies.
It has been a top-performing moderate allocation fund in eight of the previous 10 years, according to Morningstar. Its expense ratio of 0.72% is also below average for its Morningstar category.
American Funds New World F2 (NFFFX)
Emerging markets, or developing economies, are known for being riskier than more well-established nations, but NFFFX offers investors a less volatile way to gain exposure to these growing economies. It achieves this by combining emerging market stocks with more well-established companies in developed nations, including Microsoft and $2.5 trillion Novo Nordisk (NVO).
So NFFFX isn’t purely an emerging markets fund. As of Dec. 31, more than 44% of the portfolio was invested in U.S.- and European-based assets.
“As the U.S. market has outpaced others, this has helped the fund land in the top decile of peers over the past 10 years,” writes Morningstar senior analyst Stephen Welch. “However, the presence of multinationals can also hold the strategy back when emerging markets outperform.”
Overall, NFFFX is a solid option if you want a temperate dose of worldwide exposure. The approach “tends to reduce volatility, helping the strategy deliver superior downside protection in most market pullbacks since its inception, a key reason for those top-decile returns,” Welch writes.
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6 Best No-Load Mutual Funds originally appeared on usnews.com
Update 01/23/24: This story was previously published at an earlier date and has been updated with new information.
