Here Are The 7 Best Mutual Funds for Retirement for You in 2021
Investing in order to secure one’s retirement is one of the top goals of most investors. It doesn’t matter if you are currently building your wealth or are actually in the process of enjoying your retirement, there will be some mutual fund which will work for you. However, before investing, you should always be mindful of your personal risk tolerance and investment goals. These mutual funds for retirement must be evaluated carefully before you invest in them. It’s always good to have a diversified portfolio and invest some of your money in retirement mutual funds as well. It will go a long way in ensuring that you have good retirement years. In this post, we will take a look at some of the best mutual funds for retirement. Let’s get started:
Best Mutual Funds for Retirement
Vanguard 500 Index Fund (VFIAX)
Kicking off the list of the best mutual funds for retirement, is the Vanguard 500 Index Fund. It tracks the Standard & Poor’s 500 index, one of the most widely watched benchmarks for U.S. stocks. The index covers about 80 percent of the investable market capitalization of the U.S. equity market. The fund managers attempt to replicate the performance of the S&P 500, with the major difference being the fund’s low expense ratio. The fund falls into Morningstar’s large-blend category and is the ultimate core large-cap stock holding.
The fund’s top holdings are in Apple, Microsoft, Amazon, Facebook and Johnson & Johnson.
As of January 27, 2021, the fund has assets totaling almost $643.45 billion invested in 512 different holdings.
The fund places in the 27th percentile of Morningstar’s large-blend category for the trailing 12 months, the 18th percentile for the trailing three years, the 21st percentile for the trailing five years and the 28th percentile for the trailing 10 years as of early December 2017. A category placement in the first percentile is the best, while a placement in the 100th percentile is the worst.
The fund’s expense ratio is 0.14 percent, which Morningstar classifies as low. The minimum initial investment is $3,000. The expense ratio is not quite as low as that of some competitors in the index fund space. The fund’s admiral shares version offers an expense ratio of 0.04 percent with a $10,000 minimum investment.
The fund’s risk compared to that of other funds in the large-blend peer group for the trailing three- and 10-year periods is considered average by Morningstar, and below average for the trailing five years. The level of return is above average for the trailing three-, five- and 10-year periods relative to the fund’s peers.
Fidelity Advisor Equity Growth Fund (EPGAX)
Another great mutual fund for retirement is the Fidelity Advisor Equity Growth Fund. It is especially great for investors seeking active management as opposed to a passive index fund investment approach, “EPGAX is a very consistent fund that has been performing well for many years,” says Steve Azoury, founder of Azoury Financial. “EPGAX can be relied upon for long-term growth.” Fidelity is known for excellent, well-managed funds. This large-cap blend fund owns 83% U.S. stocks, 15% international stocks and a smattering of cash. The investment style favors growth and momentum strategies. This retirement fund uses an earnings growth analysis model and includes top-quality firms such as Microsoft Corp. (MSFT). EPGAX boasts category-beating returns during the most recent three-, five- and 10-year periods. The 1.01% expense ratio is also reasonable for an actively managed fund.
The investment seeks capital appreciation. The fund normally invests at least 80% of its assets in equity securities. It invests primarily in common stocks. The fund invests in companies the advisor believes have above-average growth potential (stocks of these companies are often called “growth” stocks). It invests in domestic and foreign issuers. The fund uses fundamental analysis of factors such as each issuer’s financial condition and industry position, as well as market and economic conditions to select investments.
Vanguard Balanced Index Fund (VBIAX)
If you are looking for a mutual fund for retirement, the Vanguard Balanced Index Fund is a great option. It has 60% of its assets in stocks and 40% in bonds. The fund is closed to new investors, but Admiral shares are offered under a separate class of shares for a minimum investment of $3,000.
Allocations are based on two broad indexes. Stocks are based on the CRSP U.S. Total Market Index, which represents the entire investable U.S. stock market. The index represents stocks traded on the New York Stock Exchange and Nasdaq, including microcap, small, mid cap and large cap stocks. Bonds track the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, which includes fixed-income securities of investment-grade that have maturities of more than one year.
A balanced fund helps investors diversify their portfolios, and it can be used as a core holding in a portfolio. Since this fund is highly diversified, any volatility in the market should not have a substantial impact on the returns.
As of January 27, 2021, the fund has assets totaling almost $51.92 billion invested in 14,564 different holdings.
The fund has returned 16.40 percent over the past year, 11.26 percent over the past three years, 11.27 percent over the past five years and 9.98 percent over the past decade.
The fund launched in November 1992. Parent company Vanguard is the largest mutual fund provider in the U.S. and offers a wide array of mutual funds and exchange-traded funds. Vanguard’s trademark is low-cost index products, but the company also offers many actively managed funds. The firm’s low-cost approach has led to significant inflows of assets into its funds in recent years.
This is a perfect, balanced core fund for those nearing retirement or already retired. This low-fee balanced fund tracks the U.S. stock and U.S. taxable bond markets. There’s plenty of diversification, with more than 3,000 stocks and 8,000 bonds held. The 38% bond allocation has an average duration of 6.6 years, placing it in the intermediate-bond category. The 1.36% yield is acceptable in today’s low interest rate environment. VBIAX’s 0.07% expense ratio is among the lowest for one of the best balanced mutual funds.
Pimco Income Fund (PIMIX)
The next mutual fund which is great for retirement is the Pimco Income Fund. The fund launched in March 2007. Parent company Pimco is a large investment management firm with a strong reputation in fixed income. The firm is marked by a deep bench of experienced managers and analysts. Pimco was founded in 1971 and has approximately 2,200 employees. Pimco has trading operations in North America, Europe and Asia.
The Pimco Income Fund Class A falls within Morningstar’s multi sector bond category. Funds in this category typically invest assets among several fixed-income sectors including government bonds, corporate bonds, high-yield bonds and foreign bonds.
Morningstar says assets continue to flow to this fund and cites this as one reason the fund hasn’t received Morningstar’s highest rating. Performance has continued to be strong, however.
As of January 27, 2021, the fund has assets totaling almost $131.63 billion invested in 7,676 different holdings.
The fund places in the 12th percentile of its Morningstar category for the trailing 12 months, the fourth percentile for the trailing three years, and the second percentile for the trailing five and 10 years as of mid-February 2018. A category placement in the first percentile is the best, while one in the 100th percentile is the worst.
The fund charges a front-end sales load of 3.75 percent, which means out of every $10,000, $9,625 is invested with the remaining $375 going toward sales commissions. This is on top of an expense ratio of 0.85 percent, which is classified as low by Morningstar compared to other funds in this category. The expense ratio includes a 0.25 percent 12b-1 fee. Note there are other share classes of the fund, some available at NAV and with lower expense ratios.
Income-oriented investors might choose this actively managed income fund. This fixed-income fund aims to maximize current income, with long-term capital appreciation being its second goal. The managers scan the globe to find quality U.S. and international bonds. With monthly dividend payouts, PIMIX is great for those seeking regular income payments. The fund has handily beat the returns of its benchmark – the Bloomberg Barclays U.S. Aggregate Bond Index – on a three-, five- and 10-year basis. Nearly 59% of the bonds mature within the next three years, while 25% mature within five to 10 years. This combination yields an effective maturity of 4.14 years and will temper losses, which might occur as interest rates rise. The 3.6% yield is great, and the 0.5% expense ratio is reasonable.
Fidelity Simplicity RMD Income Fund (FIRNX)
This is a great mutual fund for retirees seeking U.S. and international equities along with bonds and short-term debt. The fund prioritizes high current income, followed by capital appreciation. It’s designed for investors nearing age 70 seeking to comply with required minimum distribution rules. As a “fund of funds,” FIRNX invests in several Fidelity funds. FIRNX leans toward fixed income, with 55% in bond funds, 24% in short-term assets and the remaining holdings invested in U.S. and international equity funds. The asset class exposure may be adjusted when the fund managers deem appropriate. FIRNX’s 10-year returns handily beat its benchmark and category. The fund’s 42% turnover rate and objectives make it an ideal holding in a retirement account. Its expense ratio is 0.46%. The investment seeks high current income and, as a secondary objective, capital appreciation. The fund invests in a combination of Fidelity® domestic equity funds, international equity funds, bond funds, and short-term funds (underlying Fidelity® Funds) to seek to achieve the fund’s investment objective consistent with a payment strategy to be administered through a complementary systematic withdrawal plan.
T. Rowe Price Retirement Balanced Fund (TRRIX)
Next on our list of the best mutual funds for retirement is T. Rowe Price retirement Balanced Fund. This is an exciting, conservatively balanced fund of funds. TRRIX’s objective is to achieve the highest total return with a focus on both capital growth and income. Geared toward investors in retirement, its asset allocation includes international and high-yield bonds, investment-grade bonds, international equities and U.S. equities, and some cash reserves. To capture these broad asset classes, the fund invests in more than 20 funds spanning growth, value, small-cap equities and fixed-income styles. The fund’s returns have slightly outperformed the S&P Target Date Retirement Income Index during the past 10 years and are neck and neck with its benchmark. The 29% turnover rate makes it relatively tax-efficient and the 0.5% expense ratio is low. The 12-month yield is 1.56%. Retirement income funds are known for more conservative investing strategies, but this fund bucks that trend and uses a comparatively more aggressive strategy than its peers. While the category average for stock holdings hovers around 30 percent, this fund aims to invest about 40 percent in equity funds. In another effort to hedge against inflation, Clark has allocated about 30 percent of the fund’s fixed-income assets to TIPS and other inflation-linked securities. Additionally, Clark beefed up the fund’s holdings in money market funds to better manage new and existing cash flows. Although the fund’s performance has suffered recently due to stakes in high-yield bonds, according to the fund’s quarterly commentary, management will maintain its focus on high-yield bonds “given a gradually improving economy and expectations for reduced defaults.” The fund has returned 11.43 percent over the past year and 7.51 percent over the past three years.
Vanguard LifeStrategy Moderate Growth Fund (VSMGX)
If you’re in your 40s or older, this is one of the best mutual funds for retirement. With a 60% stock and 40% bond allocation, this moderate-growth, passively managed fund is one of the best mutual funds for retirement. The first objective of VSMGX is capital appreciation, followed by a low to moderate level of income. Great for moderately conservative investors, the fund owns two stock and two bond funds and offers exposure to both U.S. and international markets. VSMGX is like a complete investment portfolio in one fund, as it’s nicely diversified. Since inception, the fund has nearly matched its underlying index in terms of performance. The low 0.13% fee and current yield of 1.97% make this an ideal retirement fund.
The investment seeks capital appreciation and a low to moderate level of current income. The fund invests in other Vanguard mutual funds according to a fixed formula that reflects an allocation of approximately 60% of the fund’s assets to common stocks and 40% to bonds. Its indirect bond holdings are a diversified mix of short-, intermediate-, and long-term U.S. government, U.S. agency, and investment-grade U.S. corporate bonds; mortgage-backed and asset-backed securities; and government, agency, corporate, and securitized investment-grade foreign bonds issued in currencies other than the U.S. dollar.
So those were the best mutual funds for retirement for you. Hopefully, you will be able to choose one that suits your needs the best. Remember, it’s always good to diversify your portfolio and it’s never too early to plan for retirement.