26 Best Funds for Your Retirement Nest Egg
Save, save, save! That’s the advice everyone has for funding your 401(k) plan. Less is written about how you should invest those dollars you stash from every paycheck in your retirement account. Figuring out which fund to buy can be daunting.
But there are ways to take the guesswork out of how you invest your 401(k) savings. For starters, many workplace retirement plans offer index funds, which track major market benchmarks. With these passively managed products, the tough part is deciding which index or indexes you want to mimic, whether they track U.S. stocks, foreign stocks, bonds or slices of those various markets.
Of course, seeking to merely keep pace with a particular market is a reasonable objective. But some of us want to try to beat the benchmarks. For that, you need solid actively managed funds.
We examined the 105 most popular mutual funds in workplace retirement plans. a list prepared by BrightScope, which analyzes and ranks employer-sponsored retirement-savings plans. We carved out the 20 index funds from the list, which left 85 actively managed funds. We analyzed them all, pitting them against appropriate benchmarks and peers for risk, returns and consistency. Here are our 26 favorites, listed alphabetically. In addition, we also reviewed the target-date funds offered by two fund families that ranked highest in or analysis of the most popular funds in workplace retirement plans.
To help you compare the funds’ returns to appropriate benchmarks, here are the 1-year, 3-year, 5-year and 10 year returns for key indexes:
This target-date fund series works like all others: You choose the fund whose name includes the year closest to the time you expect to retire—so a 30-year-old might invest in the Vanguard Target Retirement 2050 fund (VFIFX )—and leave it to the experts to invest your money and shift assets to more-conservative holdings as you grow older. The products in this series use just four Vanguard index funds at their outset: Total Stock Market Index Fund (VTSMX ), Total International Stock Index Fund (VGTSX ), Total Bond Market Index Fund (VBMFX ) and Total International Bond Index Fund (VTIBX ). When each target fund gets within five years of the date in its name, Vanguard Short-Term Inflation-Protected Securities (VTIPX ) joins the mix. The fund tracks an index of U.S. inflation-protected securities that mature in less than five years.
The asset mix in these target funds shifts from 90% stocks and 10% bonds when the fund is 40 years away from the target to a 50-50 stock-bond mix at retirement. The asset allocation continues to change after the fund reaches the target date, eventually settling at 30% stocks and 70% bonds about seven years after the target date. From then on, the mix stays static and is similar to the allocation for Vanguard Target Retirement Income Fund (VTINX ), which is designed for investors who are already retired. At that point—again, more than seven years after the fund’s target year—the fund firm may combine your target-date fund’s assets with those of Target Retirement Income Fund.
Vanguard’s target-date funds don’t charge any fees beyond the modest charges of the underlying funds. They’re solid choices for investors who want to put their retirement-savings program on autopilot.