If you want to be ahead of the retirement game then you need to plan in advance. The earlier that you start, the better off your future self is likely to be. If you work for an employer (rather than for yourself) then you should definitely take advantage of 401(k) plans. Did you know that there are a lot of different investment options to choose from for those plans? In order to be ahead of the retirement game, you want to invest wisely.
What Is a 401(k)?
You probably already know this. Nevertheless, it doesn’t hurt to have a refresher. A 401(k) is an investment plan for retirement. Some features include:
- You’re allowed to contribute a percentage of your salary up to a certain annual limit which varies based on a several factors.
- The best plans are employer-matching plans. In other words, you contribute a percentage and your employer matches that contribution.
- You get special tax benefits for the money in the plan.
- Once the money is in the 401(k), you can’t withdraw it without penalty until you’ve reached a certain age. (Usually that age is about 60.)
- While the money is in the 401(k), it’s used for investment. Typically, you get to choose from a variety of different mutual funds for investing your 401(k).
The Top 100 Mutual Funds for 401(k) Investing
At the end of 2020, BrightScope compiled a list for Kiplinger of the top 100 mutual funds for 401(k) investing. If you want to be ahead of the retirement game, then you should choose mutual funds off of this list. Ranked from 1 – 100, the list briefly tells you the fund’s name, symbol, type and expense ratio. Additionally, it gives you the breakdown of the fund’s annualized total return at the 1 year, 3 year, 5 year, and 10 year mark. This gives you some good information about why each fund was selected to be part of the Top 100.
Be Ahead of the Retirement Game with American Funds
Kiplinger dug deeper into the Top 100 list to create a review of 14 American Funds. American Funds is a firm that you’ve traditionally had to work with through an adviser for investing. They’re a huge firm, although you may not be familiar with them by name. Many of the mutual funds in 401(k) retirement plans are American Funds. In fact, there are 14 American Funds on the Top 100 list. Eight of these are stock funds and the other six are target-date series portfolios.
Kiplinger reviews all 14 American Funds. They reiterate the fund information that you can find in the Top 100 report. However, they also add a quick “best for” tagline that makes it easy to see which fund might be for you. For example, they say that AMCPX is best for “nervous stock investors looking for a stable ride.” In contrast, ANWPX is best for “investors in search of growth across the globe.” If you know what kind of investor you are, then you can easily pick which American Funds are best for your 401(k) investment.
Other Top 10 Mutual Funds for 401(k) Investing
Although there are 14 American Funds in the Top 100 list, only one of those makes the Top 10. American Funds Europacific Growth (AEPGX) is an EAFE fund type with a .84 expense ratio. The one-year annualized total return is 16.81. It’s ten-year annualized total return is 6.27. It ranks #3 on the Top 100 list.
There are three other companies that have mutual funds in the Top 10 on this list: Dodge & Cox Stock, Fidelity, and Vanguard.
Dodge & Cox Stock
Coming in right at number ten on the list, Dodge & Cox Stock (DODGX) is a Large-Value U.S. Equities with a .52 expense ratio. It’s one-year annualized total return is 1.2. It’s ten-year annualized total return is 10.94.
There are two Fidelity options that make the Top 10 list: Fidelity 500 Index and Fidelity Contrafund.
Fidelity 500 Index (FXAIX) is a large-blend fund with a .02 expense ratio. The one-year annualized total return is 16.03. There’s no ten-year annualized total return listed. The five-year annualized total return is 13.43. This fund ranks #2 on the Top 10 list.
Down at #5 is Fidelity Contrafund (FCNTX), which is a Large-Growth U.S. Equities fund that has a .85 expense ratio. The one-year annualized total return is 34.22. The ten-year annualized total return is 15.37.
If you’ve been counting, then you know that we’ve covered four of the top ten funds so far (two from fidelity, the Dodge & Cox Stock, and one from American Funds.) The other six are all from Vanguard. Therefore if you want to be ahead of the retirement game without investing too much effort into research, then you might want to choose Vanguard mutual funds for your 401(k) investing.
The six Top 10 Vanguard funds are:
- Vanguard Institutional Index (VINIX), which is a large blend fund. This is the #1 choice on the Top 100 list compiled for Kiplinger.
- Coming in at #4 is Vanguard Total Bond Market Index (VBTLX), which offers Short/Intermediate Government Bonds.
- At #6, just after the Fidelity Contrafund, is Vanguard 500 Index. This is another Large Blend fund.
- Next up is Vanguard PRIMECAP (VPMCX). This one is Large-Growth U.S. Equities.
- Then at #8 is Vanguard Wellington (VWELX), which is a moderate allocation fund.
- And finally there’s Vanguard Mid Cap Index (VIMAX). This one, as the name suggests, is Mid Cap U.S. Equities.
You can check the Top 100 list for the details about the annualized total returns and expense ratios for each of these six Vanguard mutual funds. You can also check the list for the other 90 options in the Top 100. After all, you might find something lower on the list that feels best to you depending on your investment preferences and 401(k) limitations.
Choosing Your Mutual Funds for Retirement
As you can see, you have a range of options. You can choose mutual funds from several different big firms. Moreover, you can choose different types of funds including aggressive, conservative, and moderate funds. If you understand expense ratios and annualized total returns, then you can use this additional information to assist you in making your decision. On the other hand, if you want to make the best choice with the least research, then the additional information about each of the 14 American Funds choices could help you quickly figure out your best option.
- Will Your Money Last You Through Retirement? It Will If You Do This.
- Your Way to Living Like a Retiree Now
- Fat FIRE, Lean FIRE or FIRE – What Kind of Retirement Do You Want?
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