With the rise of exchange-traded funds, or ETFs, that let you buy and sell throughout the trading day, mutual funds have fallen out of the limelight. But don’t write off the old stalwart of simple, diversified investing just yet.
[Sign up for stock news with our Invested newsletter.]
The following list of the best mutual funds to buy now may prove to skeptics that older investment vehicles still have an important role to play. That’s true whether you’re looking for a tactical way to invest or just seeking a simple index fund with a cost-effective fee structure:
| MUTUAL FUND | ASSETS UNDER MANAGEMENT | EXPENSE RATIO | MINIMUM INVESTMENT |
| Vanguard Wellington Fund (ticker: VWELX) | $112.7 billion | 0.26% | $3,000 |
| Fidelity Select Semiconductors Portfolio (FSELX) | $20.7 billion | 0.65% | $0 |
| Fidelity Select Technology Portfolio (FSPTX) | $16 billion | 0.64% | $0 |
| Vanguard Total Stock Market Index Fund (VTSAX) | $1.6 trillion | 0.04% | $3,000 |
| Fidelity 500 Index (FXAIX) | $561.3 billion | 0.015% | $0 |
| Fidelity ZERO International Index (FZILX) | $4.2 billion | 0% | $0 |
| Vanguard Small-Cap Index Fund Admiral Shares (VSMAX) | $138.6 billion | 0.05% | $3,000 |
| Dodge & Cox Income Fund (DODIX) | $78.8 billion | 0.41% | $2,500 ($1,000 if held in an IRA) |
| American Funds Bond Fund of America (ABNDX) | $85.8 billion | 0.62% | $250 |
Vanguard Wellington Fund (VWELX)
As one of the oldest mutual funds, the Vanguard Wellington Fund is the natural place to begin. Founded in 1929, VWELX is also the first balanced fund. This means it was the first fund to combine both stocks and bonds within its portfolio.
The fund invests about two-thirds of its portfolio in stocks and one-third in bonds. It also aims to provide investors exposure to all economic sectors. In the words of Vanguard, “This is important because one or two holdings should not have a sizable impact on the fund.”
VWELX does a decent job of diversifying its portfolio across its 71 stocks and 1,371 bonds. The largest holding, Microsoft Corp. (MSFT), only accounts for 5.6% of the total portfolio. You also get exposure to all 11 sectors, as promised. The bulk of the equity portfolio is in information technology at just over 32% of the portfolio, compared to only 0.8% in the real estate sector.
Fidelity Select Semiconductors Portfolio (FSELX)
Stocks that are up 30% or more in the first half of the year have historically outperformed the rest of the market for the remainder of the year 79% of the time, according to independent research firm Fundstrat. Given this, it may make the most sense to bet on stocks that are already ahead.
“Considering that about 65% of the stocks above that 30% threshold this year are in technology (and) semiconductors, I would recommend you continue to ride that wave within one of two mutual funds,” says Daniel Milan, investment advisor representative and managing partner at Cornerstone Financial Services.
For this, he likes FSELX, which invests in companies in the semiconductor industry. While it isn’t the cheapest semiconductor fund on the market, Milan says its past performance — which has been in the top quartile of its peer group over the past one, three, five, 10 and 15 years — shows it’s worth the extra cost. It has also returned about 37% over the past 12 months.
Fidelity Select Technology Portfolio (FSPTX)
For a less focused technology fund, Milan points to FSPTX. It takes a broader approach to the sector by investing in companies that have or will develop new technologies or may benefit from advances in tech.
While this constitutes primarily semiconductor companies at nearly 39% of the portfolio, you’ll also get exposure to 20 other sub-industries within tech. Examples include technology hardware, storage and peripherals at over 20% of the portfolio, systems software at nearly 18% of the portfolio and application software at over 6.5% of the portfolio.
Launched in 1981, FSPTX has shown its mettle through thick and thin. It’s a top-quartile performer relative to its peer group over the past three-, five-, 10- and 15-year periods.
Vanguard Total Stock Market Index Fund (VTSAX)
The Vanguard Total Stock Market mutual fund is one of the largest mutual funds on Wall Street. It’s also deceptively simple, doing exactly what it sounds like it should by offering exposure to the totality of the U.S. stock market.
There are nearly 3,700 different stocks that make up this product, representing all sectors of the domestic marketplace and all sizes of companies. Of course, not all those investments are represented equally, with more than 35% of total assets in the tech sector. But if you want a bit of all that Wall Street has to offer, this mammoth mutual fund is a great place to start — particularly considering its rock-bottom fees that undercut even some of the cheapest ETFs out there.
If the $3,000 investment minimum is more than you’re willing to commit, it’s also available as an ETF under the ticker VTI.
[READ: 7 Best Large-Cap ETFs to Buy in 2024]
Fidelity 500 Index (FXAIX)
Another mutual fund that proves ETFs aren’t necessarily the lowest-cost option is FXAIX. With a 0.015% expense ratio, this one is hard to beat. It’s also hard to resist with a $0 investment minimum.
FXAIX is Fidelity’s version of an S&P 500 mutual fund. It invests at least 80% of its assets in the S&P 500. This means you’ll get exposure to the largest names on Wall Street, including Microsoft Corp., Apple Inc. (APPL) and Nvidia Corp. (NVDA). You’ll also get a lot of tech exposure, with over 30% of the portfolio in these types of companies.
FXAIX has stayed true to its benchmark by providing virtually identical returns to the S&P 500 over the past 10 years. Morningstar analysts give it a gold badge, indicating they have the highest conviction that it’ll continue to outperform its peers or benchmark over a market cycle, thanks to its “sound investment process and strong management team.” They also award it five out of five stars. So next time you find yourself eyeing an S&P 500 ETF, make sure to give FXAIX due consideration.
Fidelity ZERO International Index (FZILX)
It’s time to stop dancing around the truth and come right out and say it: You can get a mutual fund for zero fees. Fidelity Investments launched four zero-minimum, zero-expense-ratio mutual funds in 2018. This includes a total market index (FZROX), a large-cap index (FNILX), an extended market index (FZIPX) and an international index (FZILX).
All four of these funds are worth considering and have gold badges from Morningstar. We’re highlighting FZILX here simply to show even international stock exposure can come cheap.
FZILX invests predominantly in companies outside of the U.S., making it a great addition to a U.S.-heavy portfolio. Less than 2% of the portfolio is American-made at the moment. Most of its assets are in European companies at just over 40%. This is followed by roughly 26% of the portfolio in emerging markets and nearly 17% in Japan.
With nearly 2,300 companies in all, you can trust you’re well diversified. The largest holding, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), accounts for only 2.6% of total assets. Only 12% of all assets are in the top 10 holdings.
Vanguard Small-Cap Index Fund Admiral Shares (VSMAX)
The Vanguard Small-Cap Index Admiral fund is a “best in its class” small-cap fund, according to Morningstar Analyst Zachary Evens. Its well-diversified, low-turnover portfolio and rock-bottom fee make it “one of the most compelling strategies in the small-blend Morningstar category.”
VSMAX tracks the CRSP US Small Cap Index, which represents the entirety of the U.S. small-cap investable universe. This includes around 1,400 companies with market capitalizations of $5 million to $25.5 million.
“The small-cap market tends to be quite volatile, but that volatility can breed periods of exceptional performance, such as after market crashes,” Evens writes. “Small caps tend to fall faster than their larger peers but rebound faster.”
With its low fee structure, VSMAX could be a cost-effective way of benefiting from such rebounds.
Dodge & Cox Income Fund (DODIX)
When it comes to fixed-income mutual funds, DODIX is “tough to beat,” according to Morningstar analyst Sam Kulahan.
DODIX aims to be a stable source of income for investors while preserving long-term capital. It does this through a diversified portfolio of mostly investment-grade and government bonds as well as mortgage- and asset-backed securities.
“This strategy’s success owes to its relatively patient and at times contrarian approach to investing,” Kulahan writes. “(The managers) 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 compact, mostly cash-bond portfolio.”
This is paying off well for investors currently, who are receiving a tidy 4.75% 30-day SEC yield as of June 30.
The fund gets five stars and a gold badge from Morningstar.
American Funds Bond Fund of America (ABNDX)
ABNDX is another Morningstar gold badge bond fund, and it gets four stars from the firm. The fund is designed to be a core intermediate bond holding. The fund’s “improved approach and skilled team make it a top-notch offering within the intermediate core bond Morningstar Category,” writes Morningstar Director Alec Lucas.
It focuses on high-quality, investment-grade U.S. bonds across all sectors. The largest issuer currently is the U.S. Treasury at nearly one-fifth of the portfolio. The portfolio is also nearly 40% mortgage-backed obligations and 30% corporate issues. Most exciting of all may be the 5.2% average yield to worst, which is the lowest return investors can expect from the current portfolio.
At 0.62%, this fund is a bit more expensive than others on the list, but fixed-income exposure tends to be more costly. ABNDX is still considered low cost relative to its peers, which average a 0.76% expense ratio, according to Morningstar.
More from U.S. News
10 Long-Term Investing Strategies That Work
8 Best Real Estate Investing Podcasts
How to Pick Stocks: 5 Things All Beginner Investors Should Know
9 Best Mutual Funds to Buy Now originally appeared on usnews.com
Update 07/30/24: This story was published at an earlier date and has been updated with new information.
