Retirement investors face a challenging conundrum when choosing the best 401(k) funds: how to discern the value for the fees you pay. High fees can only be rationalized if a fund has consistently demonstrated an ability to outperform its benchmarks over the long haul.
[Sign up for stock news with our Invested newsletter.]
This brings us to a central debate in the investing world: the battle between active and passive investment strategies. While active managers aim to harness their expertise to outperform market benchmarks like the S&P 500, their passive counterparts take a simple approach: tracking the performance of indices such as the S&P 500 or Nasdaq composite. If you can’t beat them, join them.
Passive funds charge very low fees, whereas many active funds have expense ratios that surpass the 1% mark. And the sobering reality is that fewer than 13% of mutual funds outperform the S&P 500 over a decade, according to S&P Dow Jones.
While passive funds are a good fit for many investors, a few niche active managers validate their fees by consistently delivering superior performance.
We took a look at 10 of the best-performing 401(k) funds from the past decade, featuring a mix of active and passive funds that span various investment strategies. There’s likely a fund for every investor on this list.
Note that mutual funds come in different share classes. When you invest outside of your 401(k) plan, you use the investor share class, whereas within your 401(k) plan, you’ll have access to the institutional share class. The institutional classes come with different ticker symbols and often lower expense ratios, but will have the same portfolio.
| Fund | Expense Ratio | 10-year average annual return |
| Fidelity Select Semiconductors Portfolio (ticker: FSELX) | 0.64% | 27.1% |
| Columbia Seligman Technology and Information (SLMCX) | 1.2% | 19.6% |
| Baron Partners Fund (BPTRX) | 1.69% | 17.3% |
| Janus Henderson Global Technology and Innovation Fund (JATIX) | 0.76% | 18.3% |
| Fidelity Blue Chip Growth Fund (FBGRX) | 0.48% | 17.3% |
| Fidelity Nasdaq Composite Index Fund (FNCMX) | 0.29% | 15.7% |
| Fidelity Growth Discovery Fund (FDSVX) | 0.67% | 15.8% |
| Vanguard Growth Index Fund (VIGAX) | 0.05% | 14.7% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% | 13% |
| Calvert US Large Cap Core Responsible Index Fund (CSXRX) | 0.19% | 13% |
Fidelity Select Semiconductors Portfolio (FSELX)
Net expense ratio: 0.64% 10-year average return: 27.1%
The last decade has been meteoric for the semiconductor industry. Between the mobile revolution, the explosion of cloud computing and the emergence of the Internet of Things, global demand for computer chips has skyrocketed. The rapid rise of artificial intelligence, propelled by tools like ChatGPT, suggests the trend can continue over the next decade. It’s no surprise, then, that a semiconductors fund would top the list of best performing 401(k) funds.
The Fidelity Select Semiconductors Portfolio is an alluring fund to play the trend, ranking as one of the best-performing mutual funds of the decade with an average annual return of 27.1%.
Some of the fund’s top holdings are household names like Nvidia Corp. (NVDA) and NXP Semiconductors NV (NXPI), but the fund’s portfolio manager isn’t afraid to venture outside of the U.S., with about 5% of the fund’s assets invested in Taiwan and the Netherlands each.
However, conservative investors should approach with caution. The semiconductor industry is highly cyclical, often experiencing sharp price whipsaws dictated by the ebb and flow of global chip supply and demand. This makes FSELX a compelling choice for younger investors who can afford to ride out significant drawdowns.
Columbia Seligman Technology and Information (SLMCX)
Net expense ratio: 1.20% 10-year average return: 19.6%
The Columbia Seligman Technology and Information Fund has seen huge success in picking tech stocks over the last decade, boasting a 10-year average return of 19.6%.
The fund is guided by a philosophy that emphasizes growth at a reasonable price, steering the fund clear of the barrage of overvalued tech stocks in recent years. This means the fund outperformed its benchmark during the bloodbath for tech stocks in 2022, declining 31% while the S&P North American Tech Index declined 35%.
While the fund has missed out on some winners over the years, its long-term track record — an average return of 19.6% since its inception in 1983 — speaks for itself. At the core of the fund’s portfolio are blue-chip stocks like Apple (AAPL), Broadcom Inc. (AVGO) and Lam Research Corp. (LRCX), which all have forward price-to-earnings ratios comfortably below 30.
But the fund’s stellar returns come at a price. Its 1.20% expense ratio is on the higher end of the cost spectrum for actively managed mutual funds. Investors should compare SLMCX to lower-cost alternatives in the tech sector before considering a position.
Baron Partners Fund (BPTRX)
Net expense ratio: 1.69% 10-year average return: 17.3%
Managed by billionaire investor Ron Baron, the Baron Partners Fund is a high-growth stock fund known for its bold and concentrated positions. Baron’s aggressive strategy is evident in the fund’s composition: It holds more than 40% of its assets in Tesla Inc. (TSLA) stock.
Despite the fund’s more speculative nature, it has had an impressive track record, topping many mutual fund performance charts, with its 10-year CAGR clocking in at 17.3%, and over 16% annually since its 1992 inception.
History suggests the performance could continue, but not without significant whipsaws. Its concentration in high-volatility stocks like Tesla means it takes a bigger hit from market declines. For instance, in 2008, it plunged by 46.6%, steeper than the S&P 500’s 37% decline. On the other hand, it skyrocketed by 148% in 2020, destroying the S&P 500’s 18% gain.
While Baron has a long-term track record on his side, the fund’s current portfolio relies on Tesla continuing to defy the odds and post market-leading returns, even at a gargantuan $560 billion market cap.
Given its volatile nature and 1.69% net expense ratio, the Baron Partners Fund is best reserved for a small, more speculative portion of an investor’s portfolio.
Janus Henderson Global Technology and Innovation Fund (JATIX)
Net expense ratio: 0.76% 10-year average return: 18.3%
In addition to technology, the past decade has been kind to growth investors, as is often the case during bull markets. This has created a profitable duo for the Janus Henderson Global Technology and Innovation Fund, which bills itself as a global growth fund focused on “companies that create and benefit from advances in technology.”
It does this by pairing larger stakes in companies the fund managers believe to be resilient, meaning more well-established companies with lower business risk, with smaller positions in ones that have “optionality” — in other words, companies with the potential for high returns in specific circumstances.
This has led to a selective portfolio of only 70 companies, with the top ones you’ll likely recognize: Microsoft Corp. (MSFT), Nvidia and Meta Platforms Inc. (META). A little farther down the list, you might find some newer names, such as Canadian software company Constellation Software Inc. (TSX: CSU) and American capital equipment company KLA Corp. (KLAC).
Given its smaller portfolio, the fund is top heavy, with more than half of its assets in the top 10 names. Microsoft, the top holding, claims nearly 11% all on its own and Nvidia nearly another 8%. Which is to say, if you invest in JATIX, make sure you aren’t holding the same top names in other funds to avoid overconcentration.
Fidelity Blue Chip Growth Fund (FBGRX)
Net expense ratio: 0.48% 10-year average return: 17.3%
There’s a name for many of the companies that keep reappearing in the top holdings lists of these funds: blue chip.
Blue-chip companies are large firms that are well-established and well-capitalized. They usually sell high-quality products or services that lead to strong brand reputations. Think Nvidia, Microsoft, Amazon.com Inc. (AMZN) and Apple Inc. (AAPL), all of which top the holdings list for FBGRX.
To choose which blue-chip companies will go in FBGRX’s portfolio, the fund’s managers look for ones they believe to have above-average growth potential. In other words: blue-chip growth stocks. Currently, that puts the fund primarily in U.S. information technology companies, like the aforementioned names.
While this strategy has panned out over the past decade when both blue chips and technology companies thrived, it’s wise to pair this fund with other funds to get broader exposure to the overall market.
Fidelity Nasdaq Composite Index Fund (FNCMX)
Net expense ratio: 0.29% 10-year average return: 15.7%
The Fidelity Nasdaq Composite Index Fund takes a passive approach to investing in large-cap U.S. tech companies by tracking the Nasdaq composite index, which tracks the more than 3,000 stocks trading on the Nasdaq stock exchange. While not defined as a technology index, these companies tend to be in the tech industry, leading to a tech-heavy composition that makes the Nasdaq composite a more aggressive play.
As tech firms generally chase growth, this index tends to be more sensitive to market shifts. If the S&P 500 declines by 1%, it’s not abnormal to see the Nasdaq composite slip by 1.5%.
The higher risk level of the fund makes it ideal for younger investors, who have plenty of time before retirement to ride out market drawdowns while seeking to maximize returns. As tech giants dominated the market over the last decade, FNCMX has been a home run, averaging a 15.16% annual return. The fund has managed to outperform many high-fee actively managed funds over the same period.
With an expense ratio of 0.29%, FNCMX is one of the cheapest options to get some growth stock exposure, with some of the fund’s top holdings being familiar favorites like Microsoft Corp., Apple Inc., Nvidia Corp. and Amazon.com Inc. That said, you can often find index funds for less — including in Fidelity’s own lineup, so make sure this one is the best option available.
[7 Best Preferred Stock ETFs to Invest in Right Now]
Fidelity Growth Discovery Fund (FDSVX)
Net expense ratio: 0.67% 10-year average return: 15.8%
The Fidelity Growth Discovery Fund has a straightforward strategy: Find high-quality stocks with rapid earnings growth at reasonable valuations, similar to the growth at a reasonable price (GARP) investing philosophy.
The fund’s philosophy of avoiding companies with unreasonably high valuations safeguards it from the heavier drawdowns seen in more speculative growth-focused funds, earning the fund a neutral risk rating from Morningstar, the same rating as the Fidelity 500 index.
While primarily focused on U.S. stocks, including top holdings Microsoft, Nvidia and Amazon, the fund is willing to scour the globe for high-growth opportunities, holding investments in various international markets like the Netherlands, the U.K. and Taiwan.
Currently managed by Fidelity portfolio managers Jason L. Weiner and Asher Anolic, the fund has a stellar long-term track record for outperformance. Since its 1998 inception, the fund has posted an average annual return of 10.4%, easily beating its benchmark, the Russell 3000 Growth Index, which has posted 8.5% annualized gains over the same period.
The fund recently got a cost cut, dropping nearly 20 basis points from its expense ratio down to 0.67%, demonstrating Fidelity’s commitment to keeping costs low. This also makes it cheaper than many of its alternatives, making it worth a look for investors looking to add exposure to blue-chip growth stocks.
Vanguard Growth Index Fund (VIGAX)
Net expense ratio: 0.05% 10-year average return: 14.7%
The Vanguard Growth Index Fund is priced more in line with how index funds should be: rock bottom. The Admiral shares come in at only 0.05%. Paired with the fund’s buy-and-hold approach, which means the fund incurs fewer trading costs, this can make for a very cost-effective long-term holding.
It tracks the CRSP U.S. Large Cap Growth Index, which, as the name suggests, represents the large-cap growth segment of the U.S. stock market. This results in a median market cap of $715.5 billion across all 208 stocks in VIGAX’s portfolio.
It also means you’re going to find many of the same names in this portfolio as others on this list, including Microsoft, Apple and Nvidia at the top of the list. But with its low-cost strategy, this fund could be the best bet for retirement investors who don’t want to watch fees erode their long-term returns.
Fidelity 500 Index Fund (FXAIX)
Net expense ratio: 0.015% 10-year average return: 13%
Vanguard’s index fund is inexpensive, but few funds can beat FXAIX in terms of cost. At 0.015% annual expenses, this fund is almost free.
The Fidelity 500 Index Fund is a plain-vanilla index fund that tracks the performance of the S&P 500, a benchmark comprising 500 of the largest U.S.-based companies. Despite its boring stature as a passive index fund, FXAIX has consistently outshined most active fund managers over the last 10 years.
While the other funds on this list have eclipsed FXAIX’s returns over the last 10 years, many did so while taking more risk and leaving no guarantee that those risks will pay off for the next 10 years.
Exposure to large-cap U.S. equities is a cornerstone of most portfolios and FXAIX provides that at minimal cost. Without a compelling reason to do otherwise, low-cost index funds are typically the best choice for equity exposure because they’re much cheaper, and most active fund managers fail to outperform the S&P 500 over a long period anyhow.
With a five-star and gold badge rating from mutual fund rating service Morningstar, indicating the analysts believe the fund will continue to outperform in the near future, FXAIX is the no-brainer choice for 401(k) investors looking for an S&P 500 index fund.
Calvert US Large Cap Core Responsible Index Fund (CSXRX)
Net expense ratio: 0.19% 10-year average return: 13%
Rounding out this list of top-performing 401(k) funds is one that proves you can do good ethically and do well financially simultaneously. Calvert is an investment firm specializing in responsible investing with a 40-year history of helping investors pair their ethics and their investments.
The Calvert US Large Cap Core Responsible Index Fund tracks the company’s proprietary index, which finds the most environmental, social and government (ESG) friendly firms among the 1,000 largest publicly traded companies in the U.S. This narrows the universe to approximately 800 firms, many of which you may be surprised to recognize.
Currently, Apple, Microsoft and Google’s parent company, Alphabet, top the list. But other big names did not meet the company’s qualifications, including Meta, Berkshire Hathaway Inc. (BRK.A, BRK.B) and Exxon Mobil Corp. (XOM) The result is a fund that has 87% lower fossil fuels, 36% lower carbon emissions, 69% lower toxic emissions and 100% lower tobacco exposure than the Russel 1000 index.
Calvert doesn’t stop with choosing only the best ESG offerings, either. The firm is also a proponent of active engagement and uses all its proxy votes within the fund to further climate change and gender pay equality.
All of this impact comes with only a 0.19% expense ratio, far lower than many others on this list with comparable returns. So go ahead and invest with your head and your heart if that’s what makes you happy. It’s your future you’re investing in, after all.
More from U.S. News
7 Best Gene-Editing Stocks to Invest in Right Now
7 Best Thematic ETFs to Buy in 2024
10 of the Best-Performing 401(k) Funds originally appeared on usnews.com
Update 04/01/24: This story was previously published at an earlier date and has been updated with new information.
