If you’ve ever participated in an employer’s 401(k) plan, there’s a good chance you’ve had T. Rowe Price mutual funds among your investment choices.
When you’re putting together the investment mix for your 401(k), it can be tough to discern which funds are the right fit for your situation.
For example, if you’re in your 20s or 30s, you are in a position to take more risk with your portfolio. Older workers who are closer to retirement generally dial down the risk levels, with capital preservation becoming more important. Whatever your investment goals, it’s important to understand how the choices in your 401(k) align with those.
T. Rowe Price, like other large fund managers, offers a range of products tracking various asset classes and strategies.
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But that doesn’t mean the choices are ideal for your situation. Unlike an individual retirement account, which can be invested with any funds, stocks or bonds you choose, your 401(k) likely has a narrower range of offerings.
“401(k) plans typically provide a limited selection of investment options, often restricted to mutual funds,” says Kirsty Peev, a certified financial planner and director of portfolio management at Halpern Financial, headquartered in Ashburn, Virginia.
In most cases, she says, the plan sponsor determines the list of funds available to participants.
“This selection process often results in a narrow choice, with just one or two funds representing each asset class,” she says.
T. Rowe Price funds are similar to those of other fund families you’ll often see in 401(k)s. Although your choices are more limited than in an IRA, most investors should find they’re able to use the company’s mutual funds to create a balanced allocation with various asset classes.
Here’s a guide to some of T. Rowe Price’s most popular funds, examining the pros and cons:
| Fund | Expense ratio |
| T. Rowe Price All-Cap Opportunities Fund (ticker: PRWAX) | 0.79% |
| T. Rowe Price U.S. Equity Research Fund (PRCOX) | 0.44% |
| T. Rowe Price Dividend Growth Fund (PRDGX) | 0.64% |
| T. Rowe Price Dynamic Credit Fund (RPIDX) | 0.64% |
| T. Rowe Price Emerging Markets Corporate Bond Fund (TRECX) | 0.88% |
| T. Rowe Price Health Sciences Fund (PRHSX) | 0.80% |
| T. Rowe Price Retirement 2035 Fund (TRRJX) | 0.59% |
T. Rowe Price All-Cap Opportunities Fund (PRWAX)
This actively managed fund, with around $14 billion under management, consists primarily of stocks of U.S.-based growth companies. Heavily weighted components include some familiar names, such as Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA). Tech stocks make up about 32% of sector holdings.
The fund invests in all sectors and all market capitalizations, although more than 75% of holdings are large-cap stocks.
“Its managers have a strong track record of selecting high-quality growth stocks, making it suitable for investors looking for long-term capital appreciation,” says Michael Collins, a chartered financial analyst who’s CEO of WinCap Financial in Winchester, Massachusetts.
He adds that the fund’s focus on growth stocks may lead to higher volatility and potential underperformance in a market downturn.
“In addition to this, the adjusted expense ratio of 0.79% is a bit high in my opinion, as you can find funds that have similar performance and lower expense ratios,” Collins says. At that rate, you’ll pay $79 for every $10,000 invested per year.
T. Rowe Price U.S. Equity Research Fund (PRCOX)
This fund aims to create a portfolio with similar characteristics to the S&P 500, but with the potential to provide excess returns relative to the index.
It’s largely succeeded in that mission, outpacing the S&P on a one-year, three-year, five-year and 10-year basis.
Teresa Whitaker, regional head of the investment specialist group for equity portfolio analysis at Baltimore-based T. Rowe Price, says this fund is best suited for investors looking for a strategy with risk characteristics similar to the S&P 500 but that can provide additional value and attractive relative returns. Managers use fundamental bottom-up research to determine components.
“Lately, we have positioned it versus index funds since the risk characteristics are similar but our historical relative performance has been stronger,” Whitaker says.
Year to date and on a one-year basis, the T. Rowe Price U.S. Equity Research Fund has outperformed the S&P 500.
T. Rowe Price Dividend Growth Fund (PRDGX)
This fund invests in stocks with a track record of paying dividends or that are expected to increase their dividends over time. It mainly holds U.S. stocks, with a small representation of foreign companies.
“I’m a huge proponent of people looking at adding some type of dividend play into their 401(k),” says Stoy Hall, a CFP who’s CEO of Black Mammoth in Ankeny, Iowa. He adds that it’s appropriate for investors close to retirement who want an investment that will produce income.
Hall says that the fund’s expense ratio of 0.64% won’t eat up all an investor’s gains. Its turnover rate of 16% is low for an actively managed fund, which helps keep costs down. Dividends are distributed quarterly.
[READ: 10 of the Best-Performing 401(k) Funds.]
T. Rowe Price Dynamic Credit Fund (RPIDX)
Morningstar categorizes this as a nontraditional bond fund. Compared to other T. Rowe Price funds available to 401(k) investors, this one is on the smaller side, with $985 million under management.
It’s an example of a fund that investors should be sure they understand before jumping in because it uses a more complex strategy than simply tracking a bond index.
The fund invests in credit instruments and derivative instruments that are linked to, or provide investment exposure to, credit instruments.
According to T. Rowe Price, credit instruments may include corporate and sovereign bonds, leveraged loans, municipal securities, and mortgage- and asset-backed securities. The fund may invest in debt instruments of any credit rating, and there are no limits on its inclusion of high-yield bonds.
Currently, about 58% of the fund’s holdings are rated below investment grade.
The fund’s weighted average duration is 0.72 years, which Collins notes is fairly low.
“Its flexible approach allows it to adapt to changing market conditions, meaning that this fund should theoretically do well regardless of the interest rate situation in the United States,” he says.
Collins adds that its expense ratio of 0.64% is lower than some similar funds.
T. Rowe Price Emerging Markets Corporate Bond Fund (TRECX)
As an asset class, emerging-market debt is generally considered risky, due to potential instability, currency volatility and less sophisticated banking and regulatory systems in emerging nations.
Whitaker says this fund is designed to offer the potential for higher yields as well as higher capital appreciation compared with developed markets. Another objective is to gain exposure to higher-growth economies while taking advantage of the inherent inefficiencies of emerging-market corporate bonds, an asset class that’s growing rapidly.
The fund invests in bonds that are issued by companies in Latin America, Asia, Europe, Africa and the Middle East. T. Rowe Price expects most of the fund’s holdings to be rated below investment grade, although the fund is free to buy bonds of any credit quality.
About 40% of holdings are rated as investment grade. Collins says a focus on high-quality corporate bonds helps mitigate risk.
“It may be appropriate for investors seeking diversification and potentially higher yields within their fixed-income allocation,” he says.
“However, similar to some of the other funds, this fund has an expense ratio that is a bit pricey at 0.88%, meaning there could be better options on the market,” Collins adds.
T. Rowe Price Health Sciences Fund (PRHSX)
The health care sector has been posting solid gains in 2024, with the T. Rowe Price Health Sciences Fund outpacing performance of the Health Care Select Sector SPDR ETF (XLV).
This fund has some similarities to the S&P health care sector, as top components of each include Eli Lilly & Co. (LLY) and UnitedHealth Group Inc. (UNH). There’s plenty of other overlap between the two when it comes to fund composition.
However, the actively managed T. Rowe Price fund emphasizes companies developing new treatments, as well as those whose business models reduce costs or improve quality within health care systems. In other words, this fund is free to tilt toward growth, rather than adhere to the S&P sector’s market-cap-weighted approach.
“Unlike an index fund, the Health Sciences strategy aims to outperform its benchmarks — the Russell 3000 Health Care Index and the Lipper Health/Biotechnology Funds Index — by leveraging active research, identifying market inefficiencies and capitalizing on emerging trends,” Whitaker says.
Hall says the fund’s focus on research and development, as well as health care services, adds to its appeal versus other funds in the sector.
However, he calls the fund’s expense ratio of 0.8% the elephant in the room.
“It isn’t exactly cheap, but you get what you pay for,” Hall says, citing the fund’s 10-year return of 11.3% and its return of 13.8% since inception in December 1995.
T. Rowe Price Retirement 2035 Fund (TRRJX)
This target-date fund is intended for investors planning to retire in or around 2035. Its current mix is about 80% equities and 20% fixed income.
Whitaker says the fund’s glide path is designed with a focus on spending replacement over a long retirement time horizon.
“It is also designed to account for demographic factors such as low-to-average participant savings and increasing longevity,” she says.
“These factors influence a higher equity allocation along the glide path, particularly around retirement,” she adds, referring to the relatively high allocation to stocks, considering the intended investors plan to retire in about a decade.
This is a fund of funds, Whitaker adds, meaning that it invests in a diversified portfolio of other T. Rowe Price strategies representing various asset classes and sectors. That approach is common in target-date funds.
“As the fund nears its target retirement date, its allocation between T. Rowe Price stock and bond portfolios will become more conservative over time based on a predetermined glide path,” Whitaker says.
According to Peev, a target-date fund can be a suitable solution for investors who prefer a set-it-and-forget-it approach, or for novice investors without access to a financial advisor.
“The T. Rowe Price suite of target-date funds is reputable and diligent in its investment strategies,” Peev says. “However, it is important to note that target-date funds are ‘one size fits all’ solutions and may not be tailored to your specific financial situation.”
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7 of the Best T. Rowe Price Funds for Retirement originally appeared on usnews.com
Update 08/29/24: This story was previously published at an earlier date and has been updated with new information.
