Saving for retirement in a company 401(k) plan is a smart choice. Not only can you put away thousands of dollars of your own pre-tax earnings every year, but many employers will match a portion of your contributions. Plus, if you change jobs, it's possible to transfer your saving into your new company's 401(k) plan or shift the money into a rollover IRA. The benefits of 401(k)s haven't gone unnoticed. Americans have
Once you make the important decision to invest in a 401(k), the next step is choosing between the investment options within your plan. There will no doubt be some index funds from which to choose. Selecting the right one depends largely on what index you want to match and how much the fund charges (the lower the fee, the better). Assessing actively managed funds is more subjective. So we analyzed the management and performance of the actively managed mutual funds that rank among the 101 most popular actively managed mutual funds in 401(k) plans. The list was compiled by BrightScope, a financial-information company that rates retirement savings plans, based on the funds' 401(k) assets under management. Of the 101 most popular mutual funds, we identified the 28 best funds for you to invest in. If your 401(k) plan offers any or all of these 28 top-performing funds, they deserve strong consideration for your retirement savings.
Fidelity Growth Company
Symbol: FDGRX
Assets:
Expense ratio: 0.82%
1-year return: 21.7%
5-year return: 20.1%
10-year return: 11.5%
This outstanding fund has been closed to new investors since 2006, so if you can buy it in your retirement plan, consider yourself lucky. You won't be able to buy shares otherwise.
How lucky, you ask? In 2014, when 90% of all actively managed large-company funds lagged the S&P 500,
Wymer has always been drawn to technology and health care companies. At last report, he had invested 56% of
Vanguard Wellington
Symbol: VWELX
Assets:
Expense ratio: 0.26%
1-year return: 6.4%
5-year return: 11.3%
10-year return: 7.8%
If you're looking for a good balanced fund for your 401(k), you'll be hard-pressed to find a better one than
The fund is run by Wellington Management, which has a long relationship with Vanguard.
Dodge & Cox Stock
Symbol: (DODGX)
Assets:
Expense ratio: 0.52%
1-year return: 6.7%
5-year return: 16.4%
10-year return: 6.9%
Dodge & Cox Stock has been a member of the Kiplinger 25, the list of our favorite no-load mutual funds, since 2008. So it's no surprise that it makes the roster of the best 401(k) funds. Like other Dodge & Cox funds, Stock uses multiple managers--nine, in its case--who practice a long-term, valued-oriented, buy-and-hold strategy. And, of course, expenses are extraordinarily low for an actively managed stock fund. The upshot is a large-company stock fund that has delivered superior long-term results. Over the past 5 years, the fund beat its typical peer--funds that focus on large-company value stocks--by an average of 2.8 percentage points per year.
There's no such thing as a free lunch, however, and the trade-off with this fund is that its returns are slightly jumpier than those of its typical peer. The above-average volatility came home to roost in 2008, when the fund plunged 43.3%, compared with a 37.0% decline in Standard & Poor's 500-stock index. But investors who held on have seen their value of their shares rise an annualized 23.6% since the current bull market began in
Vanguard Primecap
Symbol: VPMCX
Assets:
Expense ratio: 0.44%
1-year return: 11.4%
5-year return: 17.6%
10-year return: 10.0%
We're green with envy if your 401(k) plan includes this fund, which is run by Primecap Management, and you already have money in it. As is the case with
Primecap's long-term record is superb. Over the past decade, it earned 10.0% annualized, an average of 2.3 percentage points per year better than Standard & Poor's 500-stock index.
Managers
Fidelity Diversified International
Symbol: FDIVX
Assets:
Expense ratio: 0.92%
1-year return: 6.9%
5-year return: 9.9%
10-year return: 5.8%
The first thing you need to know about this foreign stock fund is that 12% of its assets were invested in U.S. companies, at last report.
Why does that matter? For starters, it helps explain why
Dodge & Cox Stock International
Symbol: (DODFX)
Assets:
Expense ratio: 0.64%
1-year return: -4.3%
5-year return: 8.6%
10-year return: 6.5%
International Stock closed to new investors in early 2015, but it's still open to new accounts if the fund is offered in your 401(k) plan. If you're eligible, consider that good news. International Stock may not be the tamest foreign-stock fund around, but it has rewarded patient investors who held tight during bumpy periods. The fund's 10-year return outpaced the MSCI EAFE index, which tracks foreign stocks in developed countries, by an average of 0.9 percentage points per year. Over that period, International Stock beat 83% of its peers--foreign large-company funds that invest in a mix of growth and value stocks.
International Stock has nine managers, all but one of whom has at least
T. Rowe Price Mid-Cap Growth
Symbol: RPMGX
Assets:
Expense ratio: 0.77%
1-year return: 20.1%
5-year return: 18.4%
10-year return: 11.2%
This may be one of
Mid-Cap Growth truly focuses on midsize companies but is willing to hold onto them as they grow into behemoths. It homes in on firms with market values that fall in the range of either the S&P 400 MidCap index or the Russell Midcap Growth index--basically
The fund's 14.1% annualized return since manager
Berghuis favors highly profitable companies that boast double-digit earnings or cash-flow growth, and that have low debt. The fund holds 134 stocks. Financial-services firm
Harbor Capital Appreciation
Symbol: HCAIX
Assets:
Expense ratio: 1.02%
1-year return: 20.1%
5-year return: 18.2%
10-year return: 8.9%
Back in the 1990s, when big-cap growth stocks ruled,
Segalas, founder of
Fidelity Balanced
Symbol: FBALX
Assets:
Expense ratio: 0.56%
1-year return: 9.0%
5-year return: 11.8%
10-year return: 7.2%
As is typical of balanced funds, Fidelity's product tilts more toward stocks than toward bonds. Lately, Balanced has tilted big-time toward stocks, with 67% of its assets in them at last report. With the stock market rolling, that's been a wise move. Another good decision: More than 70% of the fund's stock assets have been in shares of large companies, which have performed better than small-company stocks in recent years. Balanced's five-year return of 11.8% annualized beat the results of 93% of its peers.
Running the show are
But on the bond side, Balanced is less risky than its rivals. It holds a similar mix of government, municipal, corporate and bank loans as its peers, but Alturi tilts the portfolio more toward debt with investment-grade credit ratings (triple-B or better).
Fidelity Puritan
Symbol: FPURX
Assets:
Expense ratio: 0.56%
1-year return: 9.6%
5-year return: 12.1%
10-year return: 7.3%
At first glance, Puritan looks like a classic balanced fund, with 70% of its assets in stocks and 30% in bonds. But truth be told, Puritan takes on a tad more risk than the typical balanced fund. Has it been worth it? Yes.
With Fidelity's stock and bond analysts behind it, Puritan has turned in reliable results over the years compared with its peers. Its five-year annualized return of 12.1% beat 96% of all other balanced funds.
American Funds American Balanced
Symbol: ABALX
Assets:
Expense ratio: 0.59%
1-year return: 7.8%
5-year return: 12.2%
10-year return: 7.0%
American Balanced is a consistent performer. The fund's solid five-year return ranks among the top 4% of all balanced funds. And the fund's performance has been steady in recent years. Between 2011 and 2014, American Balanced ranked among the top 19% of its peers or better. (So far in 2015, it ranks in the top 49%.)
The fund follows the typical 60%-40% stock-bond divide of balanced funds. Over the past 10 years, for instance, the fund's stock exposure has been as low as 60% and as high as 74%, says
Lately, the fund's 10 managers (four on the fixed-income side, six on the stock side) have pulled back on risk. At last report, stocks accounted for 61% of assets. The managers had 7% of assets sitting in cash. "The idea is to provide a package for a prudent investor," says Polak. The fund's primary goal is to preserve capital; providing income is second; and long-term growth is third. Its top three stock holdings:
T. Rowe Price Blue Chip Growth
Symbol: TRBCX
Assets:
Expense ratio: 0.72%
1-year return: 18.5%
5-year return: 19.9%
10-year return: 9.8%
T. Rowe Price Blue Chip Growth comes with above-average risk, but it could be worth your while. Since it opened in mid 1993, Blue Chip Growth's annualized 10.6% return has beaten the S&P 500 by an average of 1.2 percentage points per year. It has been more volatile, too, but only by about 8% over that period. For long-term investors, we think it's worth the ride. Just don't assume that the fund is a steady Eddy because it has the words "Blue Chip" in its name.
American Beacon Large Cap Value
Symbol: AAGPX
Assets:
Expense ratio: 0.93%
1-year return: 5.7%
5-year return: 14.4%
10-year return: 6.7%
American Beacon got its start managing pension money for
Large Cap Value has four subadvisers, and each one has its own process for finding bargain-priced large-company stocks.
The result is a portfolio of more than 200 stocks with a heavy tilt lately--27% of the fund's assets--in financials. The top three holdings are
American Funds Washington Mutual
Symbol: AWSHX
Assets:
Expense ratio: 0.58%
1-year return: 7.5%
5-year return: 15.0%
10-year return: 7.1%
When
The fund's seven current managers still follow these rules when they search for stocks. There are too many rules to list here, but many target the characteristics that are common among high-quality, blue-chip stocks. For starters, the company must have paid a dividend in eight out of the previous 10 years. (Up to 5% of holdings can be non-dividend payers, but they must pass even stricter requirements.) And 90% of the holdings must be S&P 500 constituents. In addition, companies cannot derive the majority of their revenue from alcohol or tobacco. The rules, says Polak, represent "a very strict interpretation of 'quality.'"
As you may guess, not many firms meet the standards. At last word,
The cautious strategy helps reduce volatility. Over the past 10 years,
American Funds New Perspective
Symbol: ANWPX
Assets:
Expense ratio: 0.76%
1-year return: 9.7%
5-year return: 12.8%
10-year return: 8.7%
In 1973, inflation in the U.S. hovered above 6%,
But change has served this fund well. Its 10-year annualized return ranks among the top 7% of all world-stock funds.
New Perspective's eight managers focus on growing multinational companies. The fund's top three holdings at last report were
Dodge & Cox Balanced
Symbol: DODBX
Assets:
Expense ratio: 0.53%
1-year return: 5.2%
5-year return: 13.1%
10-year return: 6.6%
We're big fans of Dodge & Cox. Each of its six mutual funds is run by multiple managers (Balanced has 16 managers), all of whom typically have a sizable chunk of their own money invested in the funds they run. The managers generally buy undervalued securities and hold them for years. Plus, Dodge & Cox charges some of the lowest fees you'll find among actively managed funds.
Dodge & Cox Balanced isn't typical of the genre. The typical balanced fund holds about 60% in stocks and the rest in bonds. In Balanced, managers have the latitude to hold as much as 75% of the fund's assets in stocks. At last word, they had 72% of assets in stocks and 28% in bonds. The above-average stock allocation can make Balanced more volatile than its peers and result in bigger losses during inhospitable markets. In 2008, for instance, Balanced lost 33.6% and trailed 89% of all moderate-allocation funds (
Fidelity OTC Portfolio
Symbol: FOCPX
Assets:
Expense ratio: 0.76%
1-year return: 21.3%
5-year return: 20.3%
10-year return: 12.2%
OTC Portfolio is often compared to other large-company stock funds that use the S&P 500 as a benchmark. But as its name suggests, this fund aims to beat the technology-heavy Nasdaq Composite index. That's why OTC Portfolio has double the exposure to tech stocks than the average large-company fund. According to
Since
Just be sure to buckle up for the ride: Over the past five years, the fund has been nearly 20% more volatile than the typical fund that focuses on large, growing companies. Three of the fund's five biggest holdings are the usual suspects: Apple,
T. Rowe Price Small-Cap Stock
Symbol: OTCFX
Assets:
Expense ratio: 0.91%
1-year return: 11.9%
5-year return: 17.0%
10-year return: 9.6%
You can't buy this fund outside of a 401(k) plan (or other type of employer-sponsored retirement plan) because it has been closed to new investors since
Manager
After more than two decades as manager, McCrickard has earned his stripes. Since he took over, the fund has returned 12.2% annualized, which is an average of 2.2 percentage points better than the Russell 2000 index, which tracks the stocks of small U.S. companies. And it has been about 13% less volatile than the benchmark over the past 22 years and change.
Fidelity Blue Chip Growth Fund
Symbol: FBGRX
Assets:
Expense ratio: 0.80%
1-year return: 19.6%
5-year return: 19.5%
10-year return: 9.9%
Kalra's experience at other tech-oriented funds, including OTC Portfolio and Fidelity Select Computers, is reflected in Blue Chip Growth. More than 30% of its assets are invested in tech stocks: Apple,
Blue Chip Growth's 20.7% annualized return during Kalra's tenure smashed the S&P 500 by an average of 3.8 percentage points per year. Of course, his ascension as manager closely coincided with the start of a powerful bull market that continues to this day. And in 2011--the only calendar year Blue Chip Growth lagged the S&P 500 since Kalra became manager--the fund lost 2.7%, compared with a 2.1% return for the index. That's a minor blemish in what otherwise has been excellent performance.
JP Morgan Mid Cap Value
Symbol: JAMCX
Assets:
Expense ratio: 1.23%
1-year return: 12.7%
5-year return: 17.1%
10-year return: 8.9%
This midcap fund hasn't hit our radar screens because it normally charges a sales load, but it has our attention now. It is closed to new investors, but that restriction doesn't apply if the fund is offered in your employee retirement plan. This fund has consistently rewarded investors with above-average returns and below-average volatility.
Mid Cap Value's managers--
T. Rowe Price New Horizons
Symbol: PRNHX
Assets:
Expense ratio: 0.79%
1-year return: 18.5%
5-year return: 22.2%
10-year return: 11.5%
We are every shade of green with envy if your retirement plan offers this small-company fund because it is otherwise closed to new investors. Translation: If your 401(k) offers
The small-company growth fund has delivered stunning results in recent years under manager
Ellenbogen is a versatile stock picker. He likes small, fast-growing companies that cater to niche markets and have solid footholds in their industry. But he isn't afraid to bet on burgeoning companies before they go public. He invested in Twitter, for instance, before its initial public offering. And he's willing to hang onto winners even after they grow into midsize- or large-company territory. Top holding O'Reilly Automotive, the auto parts retailer, has been in the fund since before Ellenbogen came on the scene and now has a market value of
With
In any case, the fund has proved to be a hardy performer in good years and bad. In 2013, a bang-up time for small-caps, Ellenbogen walloped his competition with a 49.1% return (10.3 percentage points better than the Russell 2000). In the next year, a tough one for the category, the fund gained 6.1%, 1.2 percentage points ahead of the index.
American Beacon Small Cap Value
Symbol: AVPAX
Assets:
Expense ratio: 1.16%
1-year return: 6.5%
5-year return: 14.3%
10-year return: 7.1%
This fund has above-average volatility relative to other small-company funds, but its above-average returns make up for it. Small Cap Value has outpaced its peer group--funds that invest in bargain-priced small-company stocks--in every calendar year since 2010, including the first seven months of 2015. Over the past 10 years, the fund outpaced its category by an average of 0.3 percentage point per year.
Like other
T. Rowe Price Retirement target-date funds
The firm's flagship target-date series, called Retirement, has won high marks from many--including Kiplinger's--in recent years. The obvious reason is the above-average allocation to stocks along the series' glide path (the change in the stock-bond mix over time as the fund nears its target year). T. Rowe Price Retirement 2030, for instance, devotes 77% of its assets to stocks; the average 2030 target-date fund invests 70% of its assets to stocks. Even the firm's Retirement 2015 fund, at 54% stocks, is more aggressive than the typical 2015 target-date portfolio, at 42%.
The series' underlying funds have provided some oomph as well. Among the 18 funds in Retirement 2020 are
The riskier allocation means above-average volatility. In 2008, when the S&P 500 plunged 37%, all of the top T. Rowe target-date 401(k) funds landed in the bottom half of their respective peer groups. But the good times have outweighed the bad, as evidenced by the funds' performance during the current bull market. Thanks to their strong results in a blistering market, every one of the Retirement target-date funds on this list boasts 10-year returns that rank among the top 1% of its peer group.
T. Rowe Price Retirement 2015 (TRRGX)
Assets:
Expense ratio: 0.63%
1-year return: 3.7%
5-year return: 9.5%
10-year return: 6.4%
T. Rowe Price Retirement 2020 (TRRBX)
Assets:
Expense ratio: 0.67%
1-year return: 4.5%
5-year return: 10.5%
10-year return: 6.7%
T. Rowe Price Retirement 2025 (TRRHX)
Assets:
Expense ratio: 0.70%
1-year return: 5.3%
5-year return: 11.4%
10-year return: 6.9%
T. Rowe Price Retirement 2030 (TRRCX)
Assets:
Expense ratio: 0.73%
1-year return: 5.9%
5-year return: 12.1%
10-year return: 7.2%
T. Rowe Price Retirement 2035 (TRRJX)
Assets:
Expense ratio: 0.75%
1-year return: 6.4%
5-year return: 12.7%
10-year return: 7.3%
T. Rowe Price Retirement 2040 (TRRDX)
Assets:
Expense ratio: 0.76%
1-year return: 6.8%
5-year return: 13.0%
10-year return: 7.4%
Nellie S. Huang is Senior Associate Editor at Kiplinger's Personal Finance magazine.