The best mutual funds to buy operate on long-term optimism. At the same time, they stop well shy of implying that everything that trades will go up and to the right in a straight line higher.

Still, stock-market pundits entered 2026 with expectations for more double-digit gains after the S&P 500 finished 2025 with a total return in the high teens that easily surpassed its long-term annual average.

The destination was right, but the journey was much different than expected amid a flurry of tariffs, rapid policy shifts and other issues driving stocks within an inch of a bear market before a violent rebound put stocks back into flight.

Price action in 2026 has looked a lot like 2025 so far, including a steep spring sell-off triggered by big policy moves in Washington, D.C.

Lesson learned: As long as you look at market outlooks as a way to spot potential opportunities, rather than a laser-precise roadmap of every step to come, you should do all right.

What are mutual funds?

A mutual fund is a type of investment fund, a pool of money from several investors an investment firm uses to buy stocks, bonds and/or other assets. Exchange-traded funds (ETFs) and closed-end funds (CEFs) are other types of investment funds.

Mutual funds are largely defined by how they operate.

Actively managed funds are run by one or more investment managers, who research, buy, monitor and sell investments within the fund. While they typically operate under some general guidelines — a blue-chip fund manager likely won't invest in microcap stocks — they often have broad leeway to invest as they see fit.

Index funds, however, invest automatically based on a rules-based index, like the S&P 500. For instance, an index mutual fund might track an index of large-cap tech stocks. As stocks enter the index, the fund is required to buy them in a manner that matches their weight in the index — and as they leave, the fund is required to sell them under the same parameters.

Because index funds don't require human managers (who in turn require salaries), they're often able to charge much lower fund fees. And broadly speaking, index funds on average tend to outperform professional managers.

On the flip side, index funds are constrained — they must buy what the index says they must buy, even if it might make poor investment sense. They also can't, say, exploit a quick period of extremely cheap valuations in a stock — a human manager can be much more agile because they're not being held back.

Best mutual funds to buy

Let's look at some of the best mutual funds to buy for 2026 and beyond.

These funds have been selected for their ability to capitalize on emerging trends, as well as other vital considerations, such as fees, investment strategy, management track record and more.

Data is as of May 20, 2026. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds. SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.

Fidelity 500 Index Fund

• Fund category: Large blend
• Assets under management: $791.7 billion
• Yield: 1.1%
• Expense ratio: 0.015%, or $1.50 annually for every $10,000 invested

"The U.S. is set to remain the world's growth engine, driven by a resilient economy and an AI-driven supercycle that is fueling record capex and rapid earnings expansion."

That's what J.P.Morgan's Dubravko Lakos-Bujas had to say about America heading into 2026, and he's hardly alone. Numerous research firms provided bullish outlooks for U.S. GDP growth, reflected in general optimism about where the S&P 500 will end up by New Year's 2027.

Specifically, roughly a dozen research firms' price targets for the index averaged out to about 7,600. As of May 20, the S&P 500 had already reached 7,433. Bullish firms such as Yardeni Research now see year-end levels of 8,250, with ISI Evercore noting a 30% probability the index gets to 9,000.

As boring as it might be to lead with an S&P 500 index fund on our list of the best mutual funds to invest in … well, we're going to.

The Fidelity 500 Index Fund (FXAIX) is one of the most cost-effective ways to buy the S&P 500. Fidelity charges a skinflint 1.5 basis points (a basis point is one one-hundredth of a percentage point) that undercuts even the cheapest S&P 500 ETF.

Meanwhile, neither FXAIX nor most other Fidelity mutual funds require a minimum initial investment, so even investors with little cash to start with can dig in right away.

FXAIX is market cap-weighted, which means the fund allocates the most assets to the largest companies, which means that companies such as Nvidia (NVDA) and Apple (AAPL) have an outsize effect on performance.

While there are other actively managed Fidelity funds that can take advantage of continued growth in the U.S. economy, few funds in the large-cap space can do better than the S&P 500 in the long-term, especially once you include fees, which are virtually always cheaper for index funds. Why roll against the odds?

Learn more about FXAIX at the Fidelity provider site.

T. Rowe Price Financial Services Fund

• Fund category: Financial
• Assets under management: $1.8 billion
• Yield: 0.9%
• Expense ratio: 0.86%

Financial firms such as banks and insurers were among the most popular picks heading into 2026 from a sector standpoint.

"Several tailwinds are converging for financials and are not yet priced in," Deutsche Bank said in its 2026 look-ahead. Among them, according to independent research firm CFRA's chief investment strategist Sam Stovall, are "lower rates continuing through 2026; improving credit quality; expected M&A turnaround; declining credit spreads."

Not all those tailwinds have developed as forecast, and financial stocks have struggled year to date amid rising inflation and questions about the impact of AI on service industries. Still, generally speaking, financials are a big part of the economy, and it's hard to have a sustained bull market without their participation.

T. Rowe Price Financial Services Fund (PRISX) is one of the best-rated mutual funds to invest in this sector, boasting a Bronze Medalist rating (forward-looking) and a five-star Morningstar rating (based on performance).

Co-managers Matt Snowling and Greg Locraft have built a 100-stock-plus portfolio of financial stocks. That's almost exclusively made up of companies that are within the sector, such as Bank of America (BAC), Visa (V) and Chubb (CB), but the fund does have a carve-out for companies outside the sector (think providers of financial software) as long as they derive more than half of sales from doing business within financial services.

PRISX has been extremely productive over its history, including trailing 10- and 15-year average annual returns that are within the top 10% of its Morningstar category.

T. Rowe Price Financial Services requires at least $2,500 for an initial investment.

Learn more about PRISX at the T. Rowe Price provider site.

Dodge & Cox Emerging Markets Stock Fund

• Fund category: Diversified emerging markets
• Assets under management: $1.1 billion
• Yield: 1.8%
• Expense ratio: 0.70%

One of the more interesting stories of 2025 was the resurgence of international stocks, which commonly underperform their U.S. counterparts but excelled last year amid a weakening U.S. dollar and other drivers.

That goes not just for more developed markets, but riskier emerging markets, as well. The latter's good fortunes have continued into 2026.

"They remain attractively valued and under-owned," JPMorgan said in its 2026 year-ahead outlook. "We believe the combination of improving macro momentum, rising domestic liquidity and a shift in households' asset allocation toward equities should support a sustained recovery."

Dodge & Cox Emerging Markets Stock Fund (DODEX) is a roughly 300-holding portfolio of companies predominantly domiciled in emerging or "frontier" countries that the fund's five-member investment committee views as undervalued despite having a "favorable outlook" for long-term growth.

While it allocates about a quarter of assets to mid- and small-cap stocks, the lion's share of weight goes to mega-cap international firms such as Taiwan Semiconductor (TSM) and Alibaba Group (BABA).

It's a much larger basket of holdings than is typically found in a Dodge & Cox vehicle, but the young fund's strategy has been effective since its May 2021 launch; its 19.3% trailing three-year average annual return is more than 4 percentage points better than the category average and benchmark index.

"Dodge & Cox Emerging Markets Stock is proving the skeptics wrong," Morningstar Associate Director Tony Thomas says about the fund's Silver Medalist rating. "A modest tilt toward value stocks has helped, but it's also found winners benefiting from strong growth, such as Taiwan Semiconductor Manufacturing — the portfolio's top holding since mid-2023."

DODEX requires a $2,500 minimum investment.

Learn more about DODEX at the Dodge & Cox provider site.

Vanguard Global Minimum Volatility Fund Investor Shares

• Fund category: Large blend
• Assets under management: $2.0 billion
• Yield: 2.2%
• Expense ratio: 0.21%

CFRA's 2026 price target of 7,400 was among the more conservative estimates for the S&P 500. It suggested the index would only deliver mid- to high-single-digit gains in the year to come.

"Why so cautious?" Stovall says. "Still-high valuations, an elevated Buffett Indicator, a softening jobs market, and midterm elections present formidable headwinds."

Per the former, at the end of Q1, the S&P 500's market value was 219% of U.S. nominal GDP. "Historically, breaching 100% issued a cautionary signal, while eclipsing 120% raised a red flag," Stovall noted in November.

As for the latter, Stovall cited data since 1946 that shows the intra-year drawdown for midterm election years is 18%, which was the largest of all four years in the presidential cycle.

"The S&P 500 also experienced the weakest average annual price gain (3.8%) and rose in price only 55% of the time," he added.

Vanguard has plenty of funds to help hedge volatility, but the Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX) is one of our favorite ways to approach it — even if it's not necessarily the purest way to go about it.

As the fund's name might indicate, this is a "global" (read: U.S. and international) fund, though it's split roughly 60/40 between domestic and international stocks. Manager Scott Rodemer holds more than 200 stocks of all shapes and sizes; large-cap stocks (70%) lead, but mid- (20%) and small-cap stocks (10%) are well-represented.

Rodemer isn't free-wheeling; he oversees a rules-based strategy that revolves around the FTSE Global All Cap Hedged Index. While he looks at each stock's own volatility, he also examines each one's role as it pertains to the broader portfolio's overall volatility — in other words, shades of both low- and minimum-volatility strategies.

As with other Vanguard funds, your initial investment in VMVFX will need to be at least $3,000.

Learn more about VMVFX at the Vanguard provider site.

T. Rowe Price High Yield Fund

• Fund category: Large blend
• Assets under management: $6.4 billion
• SEC yield: 5.9%
• Expense ratio: 0.70%*

Investors who want to offload their debt exposure to bond funds might do well to rely on actively managed funds whose leaders can adjust to shifts in the credit markets. That's generally true, though doubly so in times when the environment for bonds isn't exactly concrete.

One area of debt that BNP Paribas favored in its 2026 credit outlook is high-yield debt, aka noninvestment-grade debt, aka junk.

"The credit market, like the economy, is K-shaped and the lower half isn't experiencing ultra-fast growth, doesn't have aggressive capex or bond issuance plans and is deleveraging. Until that changes, the cycle can run longer, and returns stay positive," BNP Paribas' analysts said.

"Most things that are good about credit are in high yield: Spreads are decompressed, there's no supply problem, and the asset class typically outperforms as the cycle matures," they concluded.

T. Rowe Price High Yield Fund (PRHYX) is one of the bigger and better names in the high-yield space. Fund manager Rodney Rayburn invests predominately in U.S. corporate junk (90%), though the 430-bond portfolio also provides a little exposure to international corporate debt, U.S. convertible debt and other below-investment-grade securities.

PRHYX allocates about 45% of assets to single-B bonds (BNP Paribas' preferred rating in the space right now), another 33% in BB, and most of the rest in below-B debt.

Mike Della Vedova, who helped make decisions in PRHYX, has left the firm. Sole responsibility for the strategy is with Rayburn, but Morningstar isn't concerned.

"While Della Vedova's expertise will be missed, we believe Rayburn is well-equipped to continue leading the strategy. He has been involved with the strategy since 2019 and has established a solid track record," Senior Analyst Elbie Louw wrote.

PRHYX requires a $2,500 minimum investment to get started.

* 0.80% expense ratio is reduced by 10 basis points until at least July 31, 2027.

Learn more about PRHYX at the T. Rowe Price provider site.

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Having and adhering to a budget is a smart financial habit to develop. Doing so keeps you on course to meet your financial goals.

This is where a budgeting app is essential. These apps can help you declutter your finances by organizing expenses into categories. They can also help you stay on course to meet your short and long-term financial goals.

Here’s a look at other budget apps you can download through the Apple App Store or Google Play. All of the apps listed here assure users that data obtained from their bank accounts is password-protected and will not be shared with third-party vendors.

Best overall budgeting app: You Need a Budget

You Need a Budget is a strong choice if you want a detailed and hands-on budgeting app to monitor expenses. By helping you prioritize where you spend your money, YNAB offers a holistic approach to monitoring your spending habits. YNAB provides four rules for users to follow.

The first is the zero-based budgeting method, in which you assign every dollar in your bank account to a specific expense. If an emergency arises, the app accommodates budget changes for surprise expenses.

The second rule is to plan for large, infrequent expenses (say, for home repairs or annual insurance premiums) by setting aside money for them each month. Meanwhile, the third rule encourages you to make adjustments if you run out of money in one of your budgeting categories by moving money to it from a different category.

YNAB’s fourth rule is to "age your money" — in other words, once you get used to budgeting and spending less, you can pay for your current monthly bills with money you saved from the previous month rather than from your most recent paycheck. In addition to providing budgeting advice, YNAB also offers live money-management workshops online.

Price: Sign up for a free trial for 34 days, then $14.99 a month or $109 for an annual membership.

Best for beginners: Simplifi and Tiller

If you're new to budgeting apps, you can ease in with one of these choices.

Quicken's Simplifi features easy-to-navigate menus and charts, and creates a personalized spending plan you can use to monitor your income and expenses. Your spending plan adjusts as your expenses change, and the app’s features let you easily tweak your budget.

In addition to tracking your spending, Simplifi helps you plan for the future, projecting your cash flow based on upcoming bills so you can change your spending accordingly. Quicken also recently released LifeHub, which organizes your most important financial documents into a secure, digital hub. This protects them in the event your home has a fire, flood or other disaster. The service is only $1.99 per month.

Price: Sign up for Quicken Simplifi at $2.99 monthly, billed annually.

Tiller may be the best app for you if you like using spreadsheets to balance your budget. After you link your financial accounts to Tiller, you can use one of its templates to create a customized budget spreadsheet in Google Sheets or Microsoft Excel, and the sheets automatically draw in updated information about your spending and balances from the linked accounts. You can also have Tiller send you daily email updates about your account balances.

Price: Try it free for 30 days, then $79 annually.

Best app for investors: Empower

I recommend Empowerbecause it's easy to use and houses many of your personal finance accounts into one hub. I started using it last year and never looked back because it's free, easy to use, and simplifies financial management.

For example, if you have investment accounts with Fidelity Investments and Morgan Stanley, you can review both of your portfolios, including a breakdown of holdings and their allocations, on a dashboard on the Empower app.

You can also link other types of accounts, such as 529 college savings plans, health savings accounts and your home mortgage.

Price: Get the Empower app free on Google Play or the Apple App Store.

Best for debt management: PocketGuard

If you subscribe to a PocketGuard Plus membership, you can set up a debt-payoff plan integrated into your budget. You enter details such as the minimum payment and annual percentage rate of your debts, and PocketGuard allocates adequate money to put toward the debt and compiles a payment schedule.

Members of the Plus plan can also create unlimited budgets and savings goals.

The free Basic plan lets you create a budget and track your bills, spending and income.

Price: Try the premium plan free for 7 days. The premium plan is $12.99 monthly, $74.99 annually.

Best app for couples: Honeydue

After you download the Honeydue app, you can invite your partner via email or text message to download it, too. Once you both have the app, you can monitor your budgets and track your spending habits for joint accounts. (Your partner won’t be able to see information about your individual accounts and vice versa.)

You can also coordinate bill payments and discuss how to manage your budget in the app’s chat section.

Price: Download the free app on the Apple App Store or on Google Play.

Best for you and your financial adviser: Monarch

While some budgeting apps help you stay on track with your partner, Monarch lets you team up with your financial adviser. As with other budgeting apps, once you connect your accounts to Monarch, you can track your spending.

However, Monarch also allows you to securely share your account information with your adviser so you can collaborate on your savings and investment goals. You can also share the app with your partner or someone else from your household, who will have their own login.

Once you create an account with Monarch, you can add your financial adviser for free. Your adviser can securely log in to their separate account and won’t be able to see your personal identifying information, such as your bank account number.

Price: $14.99 monthly or $99.99 annually.

For a limited time, get 50% off your first year with code: MONARCHVIP

Using budgeting apps as a baseline, but also consider other options

Gerber notes that while budgeting apps can be helpful, you should adopt a hands-on approach to managing your budget. Set a money date once a month where you review your finances. And if you're in a relationship, it gives both parties a chance to discuss financial goals and concerns.

And even if you use an app, he adds, you should consider meeting with a financial adviser to discuss the best way to meet your financial goals.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make.

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Americans have the power to decide how much to save and how to invest in their 401(k) plan. But too often, they start late, save too little and invest poorly. We can't help you save, but we can point you toward good investments.

Every year, we analyze the most popular actively managed funds — measured by assets — in employer-based retirement savings plans, according to financial data firm BrightScope, and we make recommendations to "buy," "sell" or "hold."

We exclude index funds from our analysis because they tend to do their job, and the decision to invest in one rests largely on what kind of market exposure you seek — large companies or small, say, or foreign stocks.

Read on for our take on the 10 most popular active 401(k) funds, summarized below in order of assets in defined-contribution plans. All returns are through October 31, 2025.

Where to invest your 401(k)

Vanguard Target Retirement: BUY

Target-date funds are built for investors who want an expert to handle their retirement investing. Vanguard Target Retirement funds charge a low expense ratio, 0.08% per fund, and use a simple approach. The portfolios hold just four index funds, covering total U.S. and total foreign stock and bond markets. Five years before retirement, a short-term inflation-protected bond fund is added as an inflation hedge.

If we had one gripe, it would be that the "glide path" — the mix of stocks and bonds through the life of the fund — is a little less aggressive than we'd like at the start and end.

Funds in the series begin with 90% in stocks and 10% in bonds. Fifteen years later (roughly age 40 for its typical investor), the portfolio starts to lower the risk, until it hits 50% in stocks at retirement. After retirement, the portfolio continues to lighten its stock exposure until its endpoint, a 30% stock, 70% bond mix, seven years after the target year.

The funds in the series have done well: Over the past 10 years, they rank mostly in the top quartile or better of their respective peers.

American Funds Eupac: BUY/HOLD

Eupac (AEPGX), formerly known as EuroPacific Growth, invests in developed and emerging-markets stocks — an "all-you-can-eat buffet" of international holdings, says David Polak, leader of the stock team at Capital Group, the parent company behind American Funds. The U.K., Japan and Germany are the fund's biggest country exposures, but 15% of assets are in emerging markets.

Eupac's 13 managers divide the assets and run their sleeves individually, in keeping with the firm's approach to managing funds. Over the past 15 years, they beat the fund's benchmark — albeit by a slim margin — with a 6.6% return.

Dodge & Cox Stock: BUY

Dodge & Cox Stock (DODGX), a true-blue value-oriented fund, has delivered competitive returns, even though its investment style has long been out of favor. Over the past 15 years, the fund, a member of the Kiplinger 25, our favorite no-load mutual funds, has returned 12.7% annualized, which is respectable, but falls short of the S&P 500 Index's 14.5%. The fund has beaten 93% of all large-company value funds, too.

Six managers hunt for U.S. stocks that trade at a discount to their growth potential. Lately, the managers have been beefing up stakes in the struggling health care sector, including Regeneron Pharmaceuticals (REGN) and UnitedHealth Group (UNH). Health is now the fund's biggest sector, at 27% of assets.

Value funds play a key role in any diversified portfolio, and these days they can be a hedge against the growth-tilting S&P 500. The fund tends to hold up well in down markets, too. In 2022, when the S&P 500 lost 18%, Dodge & Cox Stock lost just 7%.

JPMorgan Large Cap Growth: BUY

The JPMorgan Large Cap Growth Fund (OLGAX) is a pure growth strategy, which in practical terms means that Nvidia (NVDA) makes up an even bigger chunk of the portfolio than it does in the S&P 500. That's partly why this fund may best be used in concert with a core U.S. stock index fund, at least, and maybe even a value-oriented fund as well.

To keep risk in check, longtime manager Giri Devulapally and his four cohorts pay heed to valuation, tracking stocks against their historical measures and trimming when they appear overextended, says Morningstar analyst Andrew Redden. And the group buys on dips, adding stakes to Amazon.com (AMZN) in early 2023, for instance, after shares had declined in previous months.

That approach has helped the fund hold up better in bad times compared with peers. In 2022, JPMorgan Large Cap Growth lost 26%, while peers lost 30%. The fund's 10-year record, 18.5% annualized, beats 92% of all large-growth funds.

Vanguard Primecap: BUY

The celebrated managers behind this 40-year-old fund favor growing, value-priced companies with a catalyst to drive earnings and stock prices higher. But the fund lagged the broad market in four of the calendar years between 2019 and 2024.

Be patient. The fund managers' penchant for buying at a discount has been a disadvantage of late. And health care stocks, a 24% chunk of the fund, have struggled in recent years. Despite the recent draggy performance, over the past 15 years, the fund's 14.8% annualized return beats the S&P 500 and 95% of its peers.

The Vanguard Primecap Fund (VPMCX) is best for investors with long time horizons. The managers have an average holding period of 10 years. "In order to benefit from the portfolio managers' stock picks, you should match your time horizon with the time horizon of the manager," says Ryan Barksdale, head of active stock funds at Vanguard. .

Vanguard Wellington: BUY

This nearly century-old balanced fund — it holds roughly 65% of assets in stocks and 35% in bonds — is a reliable performer, and moderate-risk investors looking for a one-stop core holding should waste no time adding it to their portfolio. Vanguard Wellington (VWELX) is also a member of the Kiplinger 25.

Dan Pozen picks the stocks and Loren Moran chooses the bonds. Both are with Wellington Management, the fund's subadviser. Pozen holds mostly U.S. large-cap stocks with durable businesses and good earnings growth potential. Moran focuses on high-quality corporate debt, government IOUs and asset-backed securities. Over the past five years, the pair's 11.1% annualized return has beaten 85% of the fund's peers.

The fund has a quality tilt, so it tends to lag in momentum-driven rallies, says Vanguard's Barksdale. But when the stock market gets jittery, Wellington shines. During the tariff-related swoon in early 2025, Wellington lost 12%, in line with a benchmark of 65% S&P 500 and 35% Bloomberg U.S. Aggregate Bond index (the S&P 500 lost 19%).

American Funds Target Date Retirement: BUY

Retirement savers often think about target-date funds for the accumulation phase, but many target-date series also aim to help retirees preserve wealth and cover their costs well past retirement age. American Funds Target Date Retirement funds, for instance, keep working until you hit age 95. The glide path starts with 90% in stocks, hits 45% stocks at retirement age and levels out at the end at 30%.

One distinctive trait of this target series is its "glide path within a glide path," says Kelly Campbell, multi-asset solutions lead at Capital Group. When you're 30, for instance, growth stocks command the stock side. But dividend stocks dominate holdings for older investors. "A 25-year-old shouldn't own the same kinds of equities as an 85-year-old," she says. Actively managed strategies from American Funds fill the target-date portfolios.

The end result is a target-date series that ranks well above average over the long haul. Funds with target years between 2030 and 2060 boast 10-year returns that rank among the top 12% of their respective peers or better.

Fidelity Freedom: BUY

Each target-date series glide path is a little different. For savers in their mid-twenties with 40 years of work ahead of them, this series starts with 90% in stocks — and most importantly, it stays that way for the next 20 years. Indeed, a significant scaling back in stocks doesn't start until age 50.

By the time savers hit 65, the Fidelity Freedom target-date funds hold about 55% of assets in stocks. And the de-risking continues for another 20 years, when the funds hit their most conservative allocation of 24% in stocks (backed by a 46% slug in bonds and 30% in short-term funds). That's more aggressive in the early years of the glide path and more conservative at the end compared with other target-date series we've highlighted here.

The biggest pluses with the Freedom series, however, are the underlying funds, which are run by some of the firm's star managers, including Will Danoff of Fidelity Contrafund, Ford O'Neil of Fidelity Total Bond and Steve Wymer of Fidelity Growth Company. Each has won a Morningstar award for portfolio management at some time or another.

Fidelity Freedom funds were laggards in the early 2000s. But since a retooling in the 2010s, they're clicking on all cylinders. All of the funds boast solid one-, three-, five- and 10-year records. At times, however, those above-average returns can come with above-average volatility, too.

Fidelity Contrafund: BUY

Will Danoff, who has skippered the Fidelity Contrafund (FCNTX) for 35 years, favors "best of breed" businesses that hold up better during periods of uncertainty, and he isn't afraid to let winners run. Berkshire Hathaway (BRK.B) has been in the fund since 2002 and provided some ballast in early 2025. It accounts for 7% of the fund's assets. "Betting big when you have a good idea is a core tenet" of the fund, he says.

Contrafund has consistently turned in above-average returns with below-average volatility over the past three, five and 10 years compared with its large-company growth fund peers. That makes it a good option for young investors who want an aggressive fund. But its relatively low volatility means older savers could consider it for money they don't need in the near or medium term.

Vanguard Equity Income: BUY

The Vanguard Equity Income Fund (VEIPX), a Kip 25 member, is the only actively managed dividend-stock fund in the top ranks of 401(k) funds. It's a good choice for moderate- to low-risk investors looking to maintain some exposure to the stock market. It yields 2.2%.

New managers took over in 2021, but so far, so good. Matthew Hand, a Wellington Management stock picker, runs two-thirds of the assets, and Sharon Hill, of Vanguard's in-house quantitative stock group, runs the rest. Since they started managing the fund together, Equity Income has returned 10.3% annualized — better than the typical large-company value fund, with less volatility, too.

Hand favors stable dividend payers trading at reasonable valuations. Hill leans into a customized computer model that emphasizes dividends and free cash flow (the money left over after operating expenses and spending to maintain or upgrade long-term assets). The managers' different approaches, says Vanguard's Barksdale, offset each other over the short term, but over the long term, the result is a smoother ride.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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At long last, "there's income back in fixed income," says Fidelity Strategic Income (FADMX) fund co-manager Ford O'Neil. The Bloomberg Aggregate U.S. Bond index now yields better than 5%, which "makes us optimistic about this asset class," he adds. 

The backdrop, of course, is the terrible year that bonds had in 2022, as the Federal Reserve raised interest rates. (Bond prices and interest rates move in opposite directions.) Strategic Income – a member of the Kiplinger 25, our favorite no-load mutual funds – lost 11% that year, compared with a 13% decline in the Agg index. 

But over the past 12 months, the multisector bond fund has excelled, with a 4.0% return, outpacing the Agg index and its peers. 

Strategic Income invests in bonds from multiple sectors, keeping in mind a benchmark of 45% of assets in high-yield bonds (debt that's rated double-B to triple-C), 30% in U.S. government and other high-quality issues, 15% in emerging-markets debt, and 10% in IOUs from developed foreign countries. The lead managers, O'Neil and Adam Kramer, decide how much to devote to each sector; other Fidelity bond sector specialists pick the securities. 

Over the past 12 months, the managers tilted toward high-yield bonds, specifically corporate bonds and leveraged loans (short- to medium-term loans issued to firms with below-investment-grade ratings). That shift paid off as both bond sectors posted double-digit returns over the past year. Emerging-markets debt and the fund's foreign developed bond sleeve performed well, too, beating their respective benchmarks. But the fund's U.S. government debt was flat and a bit of a drag on returns. 

These days, the managers are choosing to hew closely to their benchmark's weighting. "There's a wide range of macroeconomic outcomes that could unfold in the next six to 12 months and we would prefer a neutral position," he says. In 2024, he adds, smart security selection will matter more than asset allocation. 

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Folks who are new to investing inevitably stumble across the term "margin" after signing up for their favorite trading platform. But what is margin trading, and what does it mean for your portfolio?

Simply put, margin trading is the practice of investing with borrowed money. Some believe the term originates from the old days of physical ledgers, where your balance is recorded in neat columns – while investments made with money you don't actually have are jotted down off to the side, in the margins at the edge of the page.

Some call it using "leverage," because these debts offer a bigger push for portfolios just as levers help lift heavy objects. Others are more direct and simply refer to it as taking out a loan.

But the bottom line is that margin trading involves investing with money you don't actually have, and that means it comes with additional risks.

What is margin trading and how does it work?

In a traditional or cash account, you can only buy assets that you can afford. In a margin account, however, you put in a bit of seed money and get to invest a multiple of that amount.

Most brokers allow customers two times leverage. This means you borrow up to 50% of the initial investment capital – say, the ability to make a $20,000 investment despite having just $10,000 funded in your account.

There are exceptions where that percentage is lower, as well as assets where brokers prohibit any margin trading altogether. But 50% is generally the limit for most brokers.

This extra buying power isn't free, however. As with any loan, you'll need to pay interest. And while rates are typically lower than a cash advance on your credit card or unsecured personal loans, they are still pricey.

Consider Fidelity's current margin rate is 12.575% for the typical investor with a modest nest egg. That's a pretty hefty sum that adds up to $1,257.50 annually on a loan of $10,000.

How is margin interest calculated? 

Unlike a consumer car loan, where you buy a vehicle at a set price and pay a fixed rate, margin interest is less predictable.

Specifically, your investment account value can fluctuate day to day – and thus, the amount you owe your broker changes, too. Furthermore, brokers have the right to adjust the interest rate based on current market conditions.

Typically, brokers levy a daily fee based on their annual rate. In the aforementioned example of Fidelity, a loan of $10,000 would see charges of about $3.45 each day at the base rate – which, if you multiply by 365 days, gets you to that figure of $1,357.50 annually mentioned above.

Some days you could owe less based on good performance in your portfolio, and on bad days you might owe more. Those daily fees are added up and charged to you once per month.

A few bucks per day might not sound like a lot. But interest continues to accrue while you carry a debit balance. Over time, that can really add up and eat into your total returns.

What are the risks of margin trading?

Most margin traders believe they can borrow a bit of money at the current interest rate then quickly unlock an even higher rate of return in the stock market. They intend to repay the loan quickly and pocket the difference – with any interest payments just the reasonable cost of executing this strategy.

But sometimes this doesn't work out.

You might get a decent rate of return on your investments, but simply not enough to cover the costs of margin trading. If you shoulder Fidelity's rate of 12.575%, for instance, then you must return more than that percentage in gains to come out ahead.

This could lead to frustration if you choose investments that would have been modestly profitable in a cash account but have actually lost you money when you account for the fees of margin trading.

Worse, let's say you invest in an asset that loses value. That asset is your collateral for your loan, so your broker has the right to force you to sell all of your assets and pay your balance – whether you like it or not.

This dreaded occurrence, known as a margin call, is the worst example of what can happen to an investor. And it's more common than you think.

What is a margin call and how does it work?

A margin call happens to margin traders when their broker demands more money. This occurs because a margin trader's account is facing significant losses, and the broker fears it won't get repaid on its loan.

Think of it this way: If you invest $10,000 of your own money and lose $7,500, it's very embarrassing. But it's your choice whether to stay the course. And if your personal budget doesn't add up after the losses, it's unfortunate. But, ultimately, it's your call as to which bills get paid first.

If you had invested $5,000 of your own money and another $5,000 you borrowed from your bank, well, it's not just your money that's gone with that $7,500 loss. The bank is going to want its money back, but your investment portfolio that's now valued at $2,500 doesn't cover the tab – and paying your broker becomes a top priority.

When do margin calls happen? 

That previous scenario is actually unlikely to happen, in fact, because your brokerage will demand money before losses ever get that bad.

This is because trading platforms have sophisticated systems that measure risk and predict when you're in danger of suffering a big loss. As a result, your broker will almost always demand more money sooner rather than later.

Your broker will also demand a minimum amount of investor equity in a portfolio – that is, your own personal skin in the game and not just its loan. Equity percentages vary but are generally at least 30%.

Let's do some math to show an example of how this would work.

You put up $5,000 of your own money and borrow $5,000 from your broker to make a $10,000 investment. Your investor equity stake is 50% of the $10,000 value.

Now let's say that investment falls to $8,000 in value. The loan is still $5,000, so the losses are not shared equally. Rather, your investor equity takes the hit first, so you only have a $3,000 direct stake – or 37.5% of $8,000.

At this point, your broker may politely warn you are at risk and suggest you deposit more cash. After all, things can change on Wall Street, and you're still above their 30% equity threshold.

Unfortunately, things get even worse and the value of your investment keeps drifting lower toward $7,000. Minus your broker's loan, your personal stake would be a mere $2,000, or about 28.5%.

Now things are serious. Since 30% of $7,000 is $2,100, you'll have to put an extra $100 in your account immediately to meet that minimum.

That might not sound terrible. But what if you pony up $100 and the investment keeps falling to $6,000? Well, 30% of $6,000 is $1,800. So you're still behind, and you have to come up with even more cash.

If you don't have it, you'll be forced to sell some or all of your portfolio to make up the difference.

Fundamentally, margin calls happen because of this lack of investor equity in a portfolio.

So, before you engage in any margin trading, have a full understanding of your broker's structure – including the specifics of margin calls, minimum equity requirements and other fine print.

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Have you ever wondered how to find the best 401(k) investments? If you work for a company, most likely you have access to a 401(k) retirement plan. But for many people, this corporate benefit did not come with much explanation – you were either handed a thick folder or received an email with instructions on how to join the company's 401(k), along with the name and email of a contact in HR for any questions.

The result of folks not knowing how to find the best 401(k) investments is that they are not maximizing the benefits of their retirement plan. That's unfortunate because 401(k)s are an easy way to accumulate wealth and is a source of free funds; most employers match their workers' contributions up to typically 6% of their pay. 

It is also a way for many people to build wealth painlessly by contributing a monthly amount that is taken out of their paycheck and invested in available funds in the 401(k) plan.

For those who aren't familiar with what a 401(k) is, it is simply a retirement plan in which a set amount designated by the employee is taken out of their salary before taxes. This monthly amount is invested in several funds inside the company's 401(k) plan, which the employee gets to choose. 

Vanguard and Fidelity are two popular mutual fund companies that administer and offer funds in 401(k) plans. These mutual funds can be stocks, bonds, money market securities or other investments.

A note about employer matching funds: Often you have to stay an employee for five to six years for the funds to be fully vested, meaning that's when all of the company's matching money actually becomes yours.

Contribute enough to your 401(k) to at least match the employer contribution. If your company matches 50% of your contribution up to 6% of your salary, then aim to invest at least 6% of your pay. A good rule of thumb is to invest at least 10% to 15% of your pay – it could even be higher if you're investing late in life. Strive to increase your contributions every year. Some 401(k) plans will even automatically increase it for you.

If you choose a traditional 401(k) vs a Roth 401(k), you don't pay taxes on the funds or its earnings until you withdraw it. If you do so before turning 59½, you will have to pay a 10% penalty in addition to the applicable taxes. You are required to withdraw a minimum amount after 72 years of age.

How to find the best 401(k) investments for your retirement plan

Age and risk tolerance: If you are not retiring in a few years, consider being more aggressive in your investments because you theoretically will have more years to recoup your money if the accounts go south. This means allocating a larger portion of your money into stocks. Being more aggressive also means the potential to earn is even greater. Otherwise, aim for an allocation of stocks and bonds. It won't be as volatile, but the return potential is also typically less.

Simplify: Many 401(k) plans offer target date funds. These funds are structured based on your retirement year. For example, a target date fund for 2050 means it is structured for folks retiring that year. How far you are from 2050 will determine your mix of stocks and bonds in that fund, which rebalances over time as you get closer to retirement.

If you want to pick your own funds, make sure to diversify. While mutual funds by nature are technically diversified since they have to hold many securities, these investments might all be in the same country, sector or region. For example, there are tech mutual funds that hold dozens of individual company stocks but it is all in one sector. Thus an event that affects the sector impacts all the companies in it.

Also ensure that you don't invest only in funds that buy large company stocks, or large-cap funds. (Large-cap stands for large capitalization, referring to companies that have a market capitalization above $10 billion.) Make sure to have some exposure to mid-cap and small-cap funds as well. And see to it that you have a good balance of growth (fast-growing companies) and value (companies whose stocks are selling at a discount). Warren Buffett is a well-known value investor.

How to research mutual funds

There are two general investing styles in mutual funds: passive and active. Passive funds are those that invest in an index such as the S&P 500. These are considered passive because they simply buy and hold all the securities in an index for a long time with minimal turnover. Actively managed funds are run by portfolio managers who select certain securities in hopes of beating the market. However, research has shown that passively invested funds have consistently outperformed actively managed funds.

When you are a researching fund, look at its fees, performance over three, five or 10 years, and tenure of its managers if it's an actively managed fund.

Here are some websites for you to researching the best 401(k) investments:

Your 401(k) administrator's website (Vanguard, Fidelity or others) will typically offer research and educational tools for plan members to access. For example, Fidelity has an extensive stocks and funds research site to screen for mutual funds.

Morningstar: A respected name in personal finance, the site offers detailed fund profiles, performance history, and ratings. There is free, basic access and a subscription plan for more detailed information.

Yahoo Finance: It offers real-time quotes, historical stock data, analyst ratings and news. Most data is free.

Zacks Investment Research: It offers mutual fund rankings based on its proprietary scoring system plus detailed analysis. Some information is free and others are behind a paywall.

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Why struggle to find a needle in a haystack when you can buy the haystack? That was Vanguard founder Jack Bogle's argument for indexing nearly half a century ago when he launched the first index fund for individual investors.

The investment approach was easy to execute and offered instant diversification, all for a low fee. As it turns out, returns have been tough to beat.

Index mutual funds and exchange-traded funds (ETFs) have done better, on average, than most actively managed funds for years. The Vanguard 500 Index Fund (VOO), which mirrors the S&P 500 Index, has outpaced 90% of similar U.S. stock funds in the past 15 years, according to Morningstar.

Today, index funds account for more than half of assets in diversified U.S. stock mutual funds and exchange-traded funds, up from one-third of assets a decade ago. Now, "there's an index-based strategy for whatever an investor wants to get exposure to," says Todd Rosenbluth, head of research at financial data firm VettaFi.

We're still fans of active funds, of course, albeit selectively. But on average, active managers have found it tough to beat the S&P 500, which has made indexing a popular strategy. "That's why we prefer index investing over active," says Alvin Carlos, an adviser in Washington, D.C. "We don't want to invest in a losing strategy."

In recent years, however, this simple investing strategy has become more complicated, and education has failed to keep up.

"Fifteen years ago, indexing was about just measuring the broad market," says Aniket Ullal, head of exchange-traded fund data and analytics for CFRA Research. Then came designer index funds, or funds that track customized benchmarks with the goal of beating the traditional bogeys. Now, complex options-based strategies are hitting the market.

Some index funds "can be tricky even for the most sophisticated investors to understand," says Ullal.

To help you master the art of indexing, use our guide to explore different parts of the indexing world for both stocks and bonds. The choices range from traditional broad-market funds to funds that zero in on certain investing styles and strategies or particular market themes to complex offerings that bear little resemblance to Bogle's big idea.

Traditional stock index funds

Funds in this category have two defining traits: They track a broad, well-known index, such as the S&P 500, the Nasdaq-100 or the MSCI EAFE, and they weight portfolio holdings by stock market value. The bigger a company's market capitalization, the bigger its position in the fund.

What you see in the index is what you get in the fund, which is why traditional index funds are good choices for your core portfolio. "That's the nice thing about indexing," says Chris Huemmer, senior investment strategist at FlexShares ETFs. "It's all rules-based, so there's no strategy drift."

Even so, take the time to understand exactly what kind of index fund you're buying, the rules that govern its underlying holdings and how it has behaved in past markets.

"Two products may have similar names and objectives but own different stocks," says Rachel Aguirre, head of product and portfolio strategy at Vanguard.

Consider, for example, three small-company index funds: the iShares Russell 2000 ETF (IWM), the State Street SPDR Portfolio S&P 600 Small Cap ETF (SPSM) and the Vanguard Small Cap Index Fund ETF (VB). Each fund tracks a different index, so performance varies.

Companies in the Vanguard portfolio, for instance, are, on average, twice as large by market value as those in the other two funds. That's helped the Vanguard fund perform better on an annualized basis in the past five and 10-year time frames because bigger companies outperformed small ones.

Similarly, companies in the SPDR fund are more profitable overall compared with holdings in the other two funds because its index, the S&P SmallCap 600, limits constituents to firms with profits. That helped the SPDR ETF outperform the other two small-company funds in 2021.

Another tip: Stick with the same index family if you're buying individual funds to get large-, small- and midsize-company exposure. Pair an S&P 500 index fund, for instance, with an S&P SmallCap 600 index fund to avoid any overlap in stock holdings. We did that in the Kiplinger ETF 20, our favorite exchange-traded funds, matching the iShares Core S&P 500 ETF (IVV) with the iShares Core S&P Mid-Cap ETF (IJH) and the iShares Core S&P Small-Cap ETF (IJR).

Investors who prefer mutual funds should consider the Fidelity 500 Index (FXAIX) or the Schwab S&P 500 Index (SWPPX) for large-cap exposure. Otherwise, invest in a total market fund, which owns nearly every publicly traded stock. The Vanguard Total Stock Market trades as a mutual fund (VTSAX) and an ETF (VTI).

Strategic index funds: thematic funds

These funds also aim to beat a broad benchmark, but they come with a twist. Funds that aren't weighted by market cap fall into this category, for instance. The main types of strategic funds are focused on factors (defined as stock or company traits that have been proven to drive returns), company fundamentals or a thematic trend.

We'll start with factor funds. There are six main factors: value (inexpensive stocks), size (small-cap stocks, say), momentum (stocks with upward-trending prices), volatility (stocks with low price fluctuations), quality (financially healthy firms) and yield (dividend-paying stocks). Invest in these funds alongside your core holdings to enhance returns or reduce risk.

Factors can take years to pay off. That's why these funds are best considered long-term, buy-and-hold investments, says Nick Kalivas, head of factor and core equity product strategy for Invesco ETFs. Size and value, for instance, win over multiple decades. "Ten years is too short," he says. Quality, value and momentum, on the other hand, can reward in five-plus years.

But factor investing has some quirks. The strategies don't all work — as in outperform the indexes — at the same time. When the economy is contracting, low-volatility, value and quality factors outperform, and momentum and size tend to lag. During an economic recovery, size, value and quality fare best; momentum and volatility lag.

You can find funds that focus on a single factor — Fidelity and BlackRock's iShares each have several, to name just two shops. Some funds group factors because they pair well. Momentum and low volatility, for instance, work well together. Quality and value are good pairs, too.

But the jury is out on whether you should own all the factors at once — Invesco's Kalivas says yes because it adds diversification benefits; FlexShares' Huemmer says no because it could water down returns.

That's why we favor a flexible approach. The Invesco Russell 1000 Dynamic Multifactor ETF (OMFL) stresses different factors depending on whether the economy is expanding, slowing down, contracting or recovering. The fund has outpaced the S&P 500 since its November 2017 inception and boasts a better risk-adjusted return, but it has been more volatile, too.

Equal-weight funds are factor funds because they emphasize size, in a way — every company, small or large, gets an equal share of assets. They're a way to avoid overweighting the most popular stocks of the day.

Remember, over shorter periods, performance can be choppy. In the past 12 months, the Invesco Russell 1000 Equal Weight ETF (EQAL) and the Russell 1000 Index are neck and neck in terms of returns, but in late March, the two were roughly nine percentage points apart for the year to date.

Although the Invesco S&P 500 Equal Weight ETF (RSP) has beaten the S&P 500 Index since its April 2003 inception, it has lagged in the past three, five, 10 and 15 years.

With fundamentals funds, business metrics, such as revenue and free cash flow (a company's cash from operations after capital expenditures), matter most.

The Invesco S&P 500 Revenue ETF (RWL), for instance, ranks stocks by trailing 12-month revenue and rebalances every quarter. Walmart (WMT) and Amazon.com (AMZN) are top holdings. The fund has slightly outperformed the S&P 500 since its February 2008 inception.

The WisdomTree U.S. LargeCap Fund (EPS) holds profitable large stocks ranked by earnings. The fund has slightly lagged the S&P 500 in the past three, five and 10 years.

Companies that throw off cash are the focus of the Pacer U.S. Cash Cows 100 ETF (COWZ). Stocks are ranked by trailing 12-month free cash flow. In the past five years, the fund has underperformed the S&P 500 by 2 percentage points.

Finally, the Schwab Fundamental U.S. Large Company Index (ETF ticker symbol FNDX; mutual fund symbol SFLNX) tracks an index that ranks stocks using a combination of sales, cash flow and dividends plus buybacks. The fund lagged the Russell 1000 in the past three and 10 years, but it beat on a one- and five-year basis. Fit funds such as these into your portfolio as complements to your core holdings to boost returns.

Strategic index funds: factor funds

Funds that fall into the thematic subcategory let you follow your passion. These days, whatever your interest, you can find an ETF that captures the trend.

There's one for music lovers, the MUSQ Global Music Industry Index ETF (MUSQ), and one for pet care — the ProShares Pet Care ETF (PAWZ). There are several clean-energy offerings such as the iShares Global Clean Energy ETF (ICLN) and the Invesco Solar ETF (TAN).

Several are technology related, including the Global X Robotics & Artificial Intelligence (BOTZ) and the Global X Autonomous & Electric Vehicles ETF (DRIV). Some market watchers, including Invesco's Kalivas, count funds that invest according to environmental, social and corporate governance principles in the thematic category.

In most cases, thematic funds are best reserved for money you can afford to set aside for the long haul. "These funds tap growth drivers that will play out over a long time period," says iShares's Aguirre.

Buckle up, because they can be volatile. The Ark Innovation ETF (ARKK), for instance, soared 153% in 2020, only to lose 23% in 2021 and another 67% in 2022. It rose 35% in 2025 but is flat so far in 2026 through mid-April after being down as much as 17% for the year to date in March.

Quasi-index funds

The lines between index funds and active funds are blurring. Some consider the strategies we describe below as actively managed. But their outcomes are tied to an index, so we consider them quasi-index funds.

Buffered ETFs. Investors who want to stay invested in stocks but can't afford — or stomach — big downdrafts are flocking to "defined outcome" funds, also called buffered ETFs, which invest in options tied to a broad index.

The ETFs offer some protection from stock market losses over a 12-month period in exchange for a cap on potential gains. How much you give up in returns (the cap) depends in part on the amount of downside protection (the buffer) the fund offers. The bigger the buffer, the lower the cap.

Most buffered ETFs are linked to the S&P 500 Index, but some are tied to the Nasdaq-100, the Russell 2000 or the MSCI EAFE, among others. At the end of the one-year period, the fund resets by buying new options that will define the buffer and cap parameters in the next 12-month period. That's why these funds typically have a month tied to their name. But you can buy and hold these funds if you like; there's no termination date.

Look for buffered ETFs from Innovator, First Trust, AllianzIM, TrueShares and Pacer. Be sure to buy shares in a defined-outcome ETF within a week of the start of its 12-month stretch to benefit from the fund's full downside buffer.

In late April or early May, for example, buy a May-dated ETF. Stay invested for at least the full year. For investors who don't buy at the start of the period, the buffer and cap shift a bit depending on the fund's net asset value each day.

Direct indexing. This strategy once was reserved for high-net-worth individuals, largely to goose after-tax returns. It's now accessible to regular investors, thanks to free and fractional-share stock trading, as well as lower minimums to invest.

In direct indexing, also called "personalized indexing," you directly own the individual stocks of an index (or a representative set; more on that later). Plus, you can tweak your holdings to suit your needs or values. If you work for Apple (AAPL), say, and don't want or need added exposure to the stock, you can exclude it from your personalized index.

Tax-loss harvesting, which aims to reduce your capital gains tax, is key to direct indexing. Say you're tracking the S&P 500, and Exxon Mobil (XOM) shares trade at a loss in your portfolio. With tax-loss harvesting, you would sell the shares — locking in losses to offset gains in other investments — and replace Exxon with a stake in a different but similar index stock, say Chevron (CVX), to maintain proper allocation in your portfolio.

"The end result is less of your money goes to taxes, and more stays invested and working for you," says Eric Walters, an adviser in Greenwood Village, Colorado. You wouldn't own every stock in the benchmark index when you use direct indexing — otherwise you'd limit your options to reinvest in a similar security, according to IRS rules.

Tax-loss harvesting can add up to 0.5 to 1.5 percentage points a year in returns by reducing taxes, adds Walters. The more money you have in the portfolio, the more effective the strategy, and it only works in a taxable account.

Not everyone is a believer. "You can gain tax benefits, but you risk underperforming, too," says Carlos, the Washington, D.C., adviser. Some advisers say you need to invest at least $2 million to make direct indexing worthwhile. Others say only the wealthiest investors — those in the highest tax bracket or those who know they will leave the account to their heirs — should consider it. Fees are between 0.2% and 0.4% of assets per year.

If you're interested, consider going with an adviser who offers the service. Not all do. "It's an extra expense and takes time, so the client has to really care about it," says Eric Figueroa, a certified financial planner in Folsom, California. Minimums range from $25,000 to $250,000 or more. Figueroa prefers that clients have at least $50,000.

Some brokerage firms offer personalized indexing services, too. Fidelity's Managed FidFolios have a minimum of $5,000 and charge a 0.4% fee. At Schwab, the minimum is $100,000, and fees are 0.4% for balances below $2 million. You must work with a Schwab financial consultant.

Bond indexing

Indexing with bonds hasn't received as much attention as stock indexing. That might be because historically, most actively managed bond funds have outpaced their benchmark, at least over long hauls.

But that's changing. In 2022, the worst year for fixed income in decades, bond index funds fared better than their active counterparts. In more recent years, investors rushed headlong into bond funds, particularly passive ones, as higher yields made fixed-income investing more attractive.

That said, bond indexing comes with some caveats. Rather than hold every security in the bogey they track the way stock index funds do, bond index funds hold a sampling. Sometimes, that can drive up tracking error (the divergence between the return of the fund and the return of the index it tracks).

Unlike an individual bond that you buy and hold to maturity, bond fund yields can shift as the mix of securities in the portfolio changes and as interest rates fluctuate (because bond prices and yields move in opposite directions).

Traditional offerings. Traditional bond index funds are weighted by market value of debt. The U.S. bond market yardstick is the Bloomberg U.S. Aggregate Bond Index, better known as the Agg.

It was "never meant to be a comprehensive market benchmark," says Jason Bloom, Invesco's director of global ETF strategy. It's not diversified, for a start. Nearly 70% of the index is made up of government and government-agency bonds. and it excludes some key sectors, including high-yield debt.

That said, an Agg-based index fund works as a core holding. Our favorites are the Fidelity U.S. Bond Index Fund (FXNAX), which yields 4.3%, and the iShares Core U.S. Aggregate Bond ETF (AGG), which yields 4.4%.

Fill in the gaps of the Agg by peppering your portfolio with small doses of bank loans, high-yield corporate credit and even preferred securities (bond investments with stock-like features) to boost your return over time.

For high yield, we favor the State Street SPDR Portfolio High Yield Bond ETF (SPHY), which yields 7.1%. Our favorite floating rate fund is the Invesco Senior Loan ETF (BKLN). It yields 6.6%. For preferred stock ETFs, we like the iShares Preferred and Income Securities ETF (PFF), which yields 6.3%.

Factor funds for bonds. It's a new-ish category, so there aren't many factor-based bond funds. But we found a few we like.

The FlexShares High Yield Value-Scored Bond Index Fund (HYGV) and the iShares High Yield Systematic Bond ETF (HYDB) emphasize securities that score well on quality and value measures, though their approaches are different. In the past five years, both funds outpaced the typical high-yield bond fund. The FlexShares fund yields 8.0%; the iShares fund, 6.8%.

Securities in the ultra-short-term bond fund Fidelity Low Duration Bond Factor ETF (FLDR) are weighted by interest rate sensitivity. Over the past year, the fund's 5.3% return outpaced 93% of other ultra-short bond funds. It yields 4.1%.

The Invesco Fundamental Investment Grade Corporate Bond ETF (PFIG) relies on book value (assets minus liabilities), sales, dividends and cash flow to weight securities. Over the past five years, the fund beat 70% of corporate bond funds. It yields 4.2%.

Laddering for income. To smooth out current income, some investors build a bond ladder, which involves buying bonds that mature at increasing intervals, say, every year in the next 10 years. As each bond matures, you reinvest the principal in the long end of the ladder.

Now, thanks to Invesco and iShares, you can build a bond ladder with index ETFs. These target-maturity funds, dubbed Invesco BulletShares and State Street MyIncome, offer instant diversification and more liquidity than you'd get by buying individual bonds.

You can invest in a ladder of investment-grade corporate debt or high-yield IOUs with Invesco BulletShares funds. Maturity dates stretch through 2035. The State Street MyIncome suite has a Treasury track or an investment-grade corporate debt track, with maturity dates that fall through 2035.

Should you choose an ETF or mutual fund?

Should you go with an exchange-traded or mutual index fund? It's largely a matter of personal preference.

Mutual funds and ETFs are both easy to trade and offer diversified exposure to a swath of the market in one step. They both pool assets from shareholders and invest in diversified baskets of stocks or bonds or other assets. Both ETFs and mutual funds charge an annual expense ratio. But they differ in key ways, too.

Trading. Mutual fund trades are executed once a day, after the market closes. In some cases, you might have to pay a transaction fee to purchase shares in a mutual fund. ETF shares trade during the trading day, just as stocks do, for no fee at most brokers.

Minimums. Some mutual funds have no minimums. But the initial investment for a Vanguard index fund is $3,000. No ETF is that pricey — the minimum is the price of one share.

Expense ratios. ETFs have lower expense ratios than mutual funds, generally speaking. Part of the reason is that most ETFs are index funds, which are less expensive to run than actively managed funds. But ETFs also don't incur certain expenses that mutual funds do, such as fees paid to list the mutual fund on a brokerage firm's no-transaction-fee platform, for instance.

Capital gains distributions. ETFs are structured to be more tax-efficient than mutual funds. ETFs don't actually buy and sell the underlying securities in their portfolios; third parties called authorized participants do it for them. Because an ETF isn't making actual cash transactions, it's less likely to make capital gains distributions to share­holders. (You still owe capital gains taxes when you sell shares.)

That's not the case with a mutual fund. If a mutual fund sells a security in its portfolio and pockets a profit, it is required to pass on those gains to shareholders at least once a year in the form of a capital gains distribution. This doesn't apply if you hold the fund in an IRA or a 401(k). These investments are shielded from tax until you withdraw from the account. But if you hold the fund shares in a taxable account, you're vulnerable to an unexpected tax bill.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance, but has since been updated. Subscribe to help you make more money and keep more of the money you make here.

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Exchange-traded funds (ETFs) continue to gain in popularity, but the divide between ETFs and mutual funds is becoming a little murky. 

In recent years, for instance, several fund companies, including T. Rowe Price and Fidelity, have launched actively managed ETFs that are modeled after their best actively managed mutual funds. And in late 2025, the Securities and Exchange Commission (SEC) said dozens of asset managers could offer ETF share classes for existing mutual funds.

ETF index strategies, meanwhile, have been around for decades. The oldest, the State Street SPDR S&P 500 ETF Trust, known as SPY (for its ticker symbol), is more than 33 years old and has nearly $702 billion in assets under management — roughly $63 billion more than the biggest index mutual fund, the Vanguard 500 Index (VFIAX), which holds $639 billion.

When faced with a choice between buying shares in an ETF and buying shares in a mutual fund that follows a similar strategy, which is the better option for you?

"The choice isn't always black and white," says Charles Rotblut, a vice president and financial analyst at AAII, a nonprofit organization that helps individual investors. The answer may depend on several factors, including how you typically trade investments and in what type of account you plan to hold the asset, among other things. In certain cases, it may come down to a matter of personal preference.

Look-alike ETFs and mutual funds — similar, but not the same

ETFs and mutual funds have much in common. "There are many more similarities than differences," says Molly Concannon, head of national sales at Vanguard.

Both are easy to trade and offer diversified exposure to a swath of the market in one go. They both pool assets from shareholders and invest in diversified baskets of stocks, bonds or other assets. There are actively managed and index-based strategies in both ETF and mutual fund structures. And both ETFs and mutual funds charge an annual fee, known as an expense ratio.

But these types of funds differ in key ways, too. When you buy or sell mutual fund shares, trades are executed once a day, after the market close. In some cases, you may pay a transaction fee to buy shares in a mutual fund. But you can buy or sell ETFs throughout the trading day just as you would a stock, and they trade commission-free at most brokerage firms. 

ETF share prices fluctuate throughout the day, and there is a bid-ask spread — the difference between the highest price a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. What's more, an ETF's share price may deviate from its net asset value — the actual value per share of its underlying holdings — during the trading day.

Many certified financial planners prefer ETFs over mutual funds. "I exclusively place my clients in ETFs as opposed to mutual funds," says Alexis Hongamen, a certified financial planner in Orlando, Florida. And Vanguard's Concannon says ETFs are where most of the firm's individual investors have been putting their money in recent years.

But it doesn't have to be an either-or decision. "ETFs are better in most situations because they are more tax efficient and generally less costly — there are no transaction fees," says Thomas Stapp, a CFP in Olympia, Washington. But he invests in mutual funds, too, particularly when he finds a strategy that is "notably better than any ETF option" or when a strategy isn't available in an ETF.

ETFs and mutual funds: which structure works best for you?

Consider the investing scenarios below to see which fund structure works best in certain circumstances.

You have less than $1,000 to invest. A workplace retirement plan, such as a 401(k) or 403(b), makes it easy to set aside small contributions from your paycheck to your investment account. But outside of a retirement plan — you're investing on your own at a brokerage firm, say — you're better off with an ETF if you only have small sums to invest.

That's because the minimum investment for most retail mutual funds is more than $1,000, but you can buy ETFs for much less. A single share of the iShares Core S&P 500 ETF (IVV), one of the biggest U.S. stock ETFs in the country, was priced near $688 in early 2026, and most brokerages allow you to buy fractional shares with dollar amounts as low as $1 to $10.

But there may be workarounds to mutual fund minimums, too. At Charles Schwab, brokerage customers can make an initial investment of $100 in any of the thousands of mutual funds on its OneSource network of no-transaction-fee mutual funds.

You want to invest in a broad-based index fund. Either an ETF or mutual fund works here. "It's largely a matter of preference," says AAII's Rotblut. That's because both are low-cost and inherently tax-efficient. (Index funds tend to buy and hold stocks, distributing fewer capital gains than more actively traded funds do.)

You're investing in a taxable account and you're tax wary. Go with an ETF. "My basic rule of thumb is to use ETFs in taxable brokerage accounts," says Keith Spencer, a certified financial planner in Spokane. Tax efficiency has long been a draw for investors to ETFs. It has to do with the way that ETFs are structured compared with mutual funds.

ETFs don't actually buy and sell the underlying securities in their portfolios. Instead, third parties called authorized participants do it for them. Because the ETF itself isn't making any cash transactions, it is less likely to make a capital gains distribution to shareholders. (You still owe capital gains taxes when you sell shares.)

In contrast, mutual funds buy and sell the actual securities in their portfolios. If a mutual fund pockets a profit when it sells a holding, it is required to pass on those gains to shareholders at least once a year, triggering a surprise capital gains tax bill. That's why holding an ETF in a taxable account will likely generate less tax liability than a mutual fund with a similar strategy.

You're investing in a tax-deferred account. Opt for whichever is cheaper — the ETF or the mutual fund — in annual expense ratio plus any transaction fees you may pay to buy and sell shares.

In a retirement account such as an IRA or 401(k), capital gains distributions don't create any sort of taxable event because these accounts are shielded from tax until you withdraw the money from the account.

You're an active trader. ETFs are nimbler than mutual funds because they trade intraday. Mutual fund trades settle once a day, after the market closes. You can also sell shares short (a bet on falling prices) or buy or sell options on an ETF.

But be forewarned: When markets get volatile, the difference between an ETF's share price and its net asset value may widen, as will the bid-ask spread. That means the cost of buying or selling ETF shares may rise during choppy trading days, according to State Street Investment Management. In 2010 and 2015, for instance, ETF prices fell well below the net asset value of their underlying assets during flash crashes, which occur when market prices plunge and then recover almost immediately.

During rough market periods, consider limiting your trades to the largest and most widely traded ETFs, such as the SPY ETF.

Other U.S. stock ETFs with high average daily trading volumes are the Invesco QQQ Trust (QQQ) and the iShares Russell 2000 ETF (IWM). At the very least, set limit orders on your transactions, which allow you to trade shares at a specific price.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance, but has since been updated. Subscribe to help you make more money and keep more of the money you make here.

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Take advantage of an investing strategy only institutional or ultra-high-net-worth investors had access to in the past. Increase your investment portfolio’s after-tax return. Build your own index fund to invest in what matters to you. It’s tempting to dismiss these marketing claims as hyperbole, except they are coming from some of the best-known and most-respected names in the investing world, including Fidelity, Schwab and even Burton Malkiel, author of the investing classic A Random Walk Down Wall Street.

The fanfare is about a controversial trend: A growing number of investment firms now offer Main Street investors a strategy called “personalized” or “direct” indexing that typically requires buying and trading stocks directly, mimicking an index. Investment firms and advisers have long offered this strategy to the wealthy for an annual management fee that’s often more than 1% of the portfolio’s value. But now, enabled by no-commission trading, smart supercomputer programs and the ability to buy fractions of shares, at least three firms—Fidelity, Schwab and Wealthfront—are repackaging the service for cost-conscious index investors. The new offerings enable you to dabble in personalized indexing with portfolios as small as $1, for fees ranging from $4.99 a month to 0.4% a year (see the table below). 

There are two main types of these new programs. One focuses on personalizing your portfolio by allowing you to invest in thematic baskets of individual stocks—green energy firms, for example—or to tailor a broader index by eliminating companies you may object to or that you have large positions in elsewhere. The other type, which typically allows less personalization, is all about tax efficiency, focused on harvesting investment losses to offset gains or income and reduce your bill on April 15. 

Why not just pick the stocks on your own? Few average investors have the time and expertise either to buy and manage potentially hundreds of stocks in a way that replicates an index or to constantly swap money-losing stocks for similar issues to lock in tax losses.

Healthy Skepticism For Direct Indexing

Any new Wall Street offering should be scrutinized. And this one has plenty of critics: Rick Ferri, a financial adviser and president of the John C. Bogle Center for Financial Literacy, questions the fees and wonders whether the customized portfolios might make it harder to move assets from the provider who built the personalized index. 

As for tax efficiency, investors will have to weigh any advantage against the increased complexity of their tax returns: Schwab (which requires potential new clients to have a no-cost consultation with one of its advisers) warns its Personalized Indexing investors to expect 1099 tax forms that can exceed 50 pages, for example. And some individual investors might consider the minimum investment at Schwab and Wealthfront—$100,000—on the high side.  

Reasons to Invest

Even boosters—including fund-research giant Morningstar, which plans to roll out a direct indexing program to be sold through advisers late in 2022—concede that these new indexes aren’t for everyone. Daniel Needham, president of Morningstar’s Wealth Management Solutions, urges investors to first protect their core savings by building up an emergency fund and using tax-advantaged retirement-savings accounts to invest in the tried-and-true mix of low-cost stock and bond index funds. Once that’s done, he says there are three main reasons an investor might consider a personalized index: 

Preferences. Although there are already more than 10,000 mutual and exchange-traded funds with almost every imaginable mix of stocks, some investors may prefer to create a portfolio of individual stocks to address ethical or other concerns. Customization might be limited, though. Customers of Fidelity’s managed FidFolios can jettison up to five stocks or two industries from Fidelity’s preset portfolios; for now, Schwab’s clients can bar only three stocks after selecting a portfolio. An exception is Wealthfront, which gives clients the ability to eliminate an unlimited number of stocks from their personalized index.  

Balance. Employees of companies that offer significant stock compensation (tech firms, for example) may want to limit tech exposure elsewhere. They could create a personalized index that avoids the tech stocks that make up more than one-fourth of the S&P 500, diversification that could reduce overall portfolio risk. 

Taxes. Investors in high tax brackets who expect to reap significant capital gains can use personalized indexing to turbocharge tax loss harvesting in taxable brokerage accounts. The technique involves selling an investment that has declined in value and using the losses to offset taxes on capital gains from other investments (or up to $3,000 in income if losses exceed gains). To stay fully invested, investors use the proceeds to buy something similar. 

This requires expertise, because the IRS’s “wash sale” rule penalizes you for switching into investments that look “substantially identical” to whatever you sold in the past 30 days. You can’t sell and then buy back GM shares within the next month, for example. But you can sell GM and buy Ford 

Losses are abundant these days in mutual funds and ETFs, of course, but direct-indexing promoters claim that holding individual stocks allows you to cash in on losses that might be obscured by the overall return of a broad index fund. “Even in a good year, 20% to 30% of stocks will be down,” explains D.J. Tierney, a senior portfolio strategist for Schwab Asset Management Solutions. 

The boosters say tax-loss harvesting can be worth the work. A Wealthfront study says that over the five-year period ending April 30, the after-tax returns of the firm’s US Direct Indexing clients were typically 0.4 to 0.8 percentage point a year ahead of where they would have been had they stuck with ETFs and used standard tax-loss harvesting strategies.  

Malkiel, Wealthfront’s chief investment officer, says that tax loss harvesting is one of the only exceptions he makes to his passive-index-investing advice: “I absolutely believe in direct indexing. It is really very helpful in times like this, when the market has declined so sharply.”

But other cost-conscious investment advisers say most investors don’t pay enough taxes to make the strategy worthwhile, unless they expect large capital gains. It shouldn’t be surprising that a complicated tax strategy pays off most for those with high tax bills. For everybody else, personalized indexing, it seems, is like hiring a tailor to craft a bespoke shirt. Creating a customized stock portfolio for a fee might be a luxury to invest in only after taking care of the necessities.

Brokered certificates of deposits take these safe-but-stodgy investments and give them a turbo boost — they're a key way to take advantage of rising interest rates.

You buy brokered CDs through a brokerage firm. Brokered CDs typically provide above-average yields when compared with CDs offered through banks. For example, a one-year brokered CD at Fidelity yields 3.45%. A top-yielding one-year CD from a bank pays 2.80%, on average, according to DepositAccounts.com, a rate comparison site. 

Another pro: You’re not subject to early-withdrawal penalties. Brokerage firms that do this sort of packaging usually maintain an active secondary market for their CDs, meaning you can sell them back (by withdrawing your money) before they mature. Bank CDs have early-withdrawal penalties that range from three months’ to a year’s interest. 

However, having the flexibility to sell comes with potential drawbacks. First, your proceeds from selling a CD before it matures can vary with changes in interest rates. If rates have risen, you won’t get back as much as you paid for the CD. (On the other hand, if rates have fallen, you should get more.) CDs in the secondary market act in many respects like short-term bonds: When rates rise, the values of existing bonds fall; when rates fall, bond values rise. Another pitfall is that some of these CDs may be callable, meaning that if interest rates fall, the brokerage firm may redeem or sell your CD before maturity. In that case, you’ll miss out on future interest. 

You can buy brokered CDs at investment firms such as Charles Schwab, Fidelity and TD Ameritrade. Ask about the minimum requirement to purchase CDs, as well as possible fees. TD Ameritrade, for example, has a minimum requirement of $1,000, with a mark-up or mark-down price included in your price quote when buying or selling new issues. Also make sure your CD is insured by the Federal Deposit Insurance Corp. Brokerage firms typically partner with FDIC-insured banks, but not always.

Robo-advisers, those automated investment services offered by banks, brokerages and other financial firms, promise low-cost, computer-driven investment management geared to your goals.

Although $1,000 is not enough to get started at Charles Schwab (it’s a heavy-weight competitor in robos, but its Intelligent Portfolio service requires $5,000 to open an account), it’s plenty for SoFi.

The fintech company’s digital advice service, called SoFi Invest, has a $1 minimum and no annual management fee. What’s more, SoFi’s digital service wins top marks as the best robo-adviser for first-time investors from the Robo Report, a quarterly publication from Condor Capital, a Martinsville, N.J.-based advisory firm, that measures the performance, among other things, of robo-adviser services.

SoFi’s program is similar to other robo services. You answer a quick online survey that touches (lightly) on your goal, financial situation and risk tolerance. Then an algorithm spits out a recommended diversified portfolio for you that holds a smattering of exchange-traded funds that are appropriate to your investment timeline.

SoFi competitor Wealthfront has a $500 entry minimum and charges 0.25% in annual management fees. Wealthfront’s robo portfolios have performed better than peers in recent years, according to the Robo Report, thanks in part to a 10% allocation to energy stocks, the best-performing sector in the U.S. stock market over the past two years.

At Fidelity, the price of entry and costs are low in the beginning for its Fidelity Go digital advisory service — there’s no minimum to open an account and no advisory fees for accounts with balances under $25,000.

That’s in part why the Robo Report names Fidelity Go as the best robo-adviser overall. Once balances exceed certain levels, annual fees apply; for balances above $25,000, it's a 0.35% advisory fee. But Robo Report also like Fidelity Go for its additional features, including live operational support and licensed advisers, as well as retirement planning features.

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Fractional shares, increasingly available at online brokers including Schwab, Fidelity and Robinhood, allow you to buy a portion of a stock you might not otherwise be able to afford. You can even put together a portfolio of stock snippets, giving you a diversified ownership stake in the best of corporate America, even if you're just starting out and your budget is limited.

Say you had $1,000 to invest and wanted to buy stock in NVR (NVR), a homebuilder recently rated Strong Buy by investment research firm CFRA. You'd be out of luck, considering the shares recently traded for about $4,200 a pop. But at Schwab, for example, you'd be able to buy what the company calls a Stock Slice – a single slice or up to 30 slices at a time of any S&P 500 stock for as little as $5 per slice, commission-free. With Fidelity's Stocks by the Slice program, you can access more than 7,000 U.S. stocks and exchange-traded funds (ETFs) for as little as $1.

You can also trade fractional shares at Robinhood and InteractiveBrokers, each with programs starting at $1. Eligible stocks and ETFs at Robinhood trade for more than $1 per share and have a market value of more than $25 million. InteractiveBrokers allows trading in U.S. and European stocks and ETFs. Vanguard is testing fractional trading of Vanguard ETFs for launch later this year. The rules and eligible investments for fractional share-buying differ by broker, so be sure to compare options.

Investing by dollar amount rather than by number of shares makes it easy to dollar cost average – a strategy of investing a set amount at regular intervals which ensures that you buy more shares (or a bigger fraction of a share) when prices are low than when they are high. The process also helps to take the emotion out of investing.

You'll receive dividends on a pro-rated basis, but as a partial shareowner, you typically have no voting rights. And although you can sell anytime you want, you likely won't be able to transfer fractional shares to a new brokerage.

In the latest Kiplinger's Personal Finance Magazine, our editors offer advice on how to spend, save and invest $1,000. Get other smart tips:

• Add small-caps to your portfolio
• Open an account with a low-cost roboadviser
• Expand career options with online courses
• Lend money to a good cause

Jacob Pruitt is the president of Fidelity Charitable, the nation’s largest donor-advised fund.

For someone who is new to donor-advised funds, what do they do and how do they work? They’re similar to an investment account. You put money or other assets into an account, and if you itemize, you can claim the tax deduction up front. You have the ability to invest your money in a variety of mutual funds, including funds that focus on environmental, social and governance (ESG) issues. Then you identify an IRS-approved 501(c)(3) nonprofit you want to support. Fidelity Charitable can accept a variety of assets, including publicly held stocks, bonds and mutual funds, shares in privately held companies and private-equity firms, and restricted stock. We’ll convert those assets to cash and put them in your charitable giving account. Even if you don’t itemize, giving an appreciated asset to a donor-advised fund provides a tax benefit because you may eliminate paying taxes on capital gains you’ve accumulated through the years.

This giving season, what advice do you have for people who want to get the most out of their charitable dollars but are concerned about the impact of inflation and a recession on their family budgets? I would encourage them to continue to give if they can. The need for nonprofits is there regardless of the economic environment. They’re under pressure from a multitude of factors, including stock market volatility and inflation. In these challenging times, people have to be even smarter about how they give and make sure that they do their homework. We’re asking our donors who typically contribute to continue to give, and they have. Year to date, we’ve seen about $4.8 billion in grants, an increase of about 11% over the same period last year. Our donors put money in early on and now they’re picking the causes that they want to support. That’s the beauty of a donor-advised fund: Because you have put the money into the account during positive market conditions, it becomes a ready reserve to draw on even during economic downturns.

Where are donors directing their grants this year? We are seeing dollars go to a variety of categories. About $128 million in contributions have been taken out of Fidelity Charitable to support Ukraine. Organizations that support food security are definitely getting contributions from the fund, along with educational, religious and health organizations.

Many people donate appreciated securities to donor-advised funds. Has the bear market led to a decline in those contributions? Obviously, the market has impacted donations of appreciated securities. What we’re seeing is that individuals are picking the right assets to donate. They’re rebalancing their portfolios and looking at different ways to still contribute to their Fidelity Charitable Giving Account. And we’re still seeing donations of cash as well.

Despite recent downturns, many early cryptocurrency investors are still sitting on large gains. Is that an asset they can contribute to Fidelity Charitable? Yes. We saw a huge increase in contributions of cryptocurrency to Fidelity Charitable last year. A large portion of that was bitcoin, litecoin and ethereum. When we get contributions of cryptocurrency, we convert them to cash immediately and add the cash to the donors’ accounts, where they may use it to make grants or allow it to continue to grow. I would encourage individuals who are still sitting on cryptocurrency gains to consider contributing them to a donor-advised fund.

Is your broker helping you be a better investor? That was the key question we sought to answer as we rolled out our annual online broker survey.

After all, fees don't matter much anymore. They're low everywhere. So, what's left? Service.

Does your broker provide the tools you need to help you keep track of your financial life and goals? In big and little ways, is it guiding you toward smarter investment decisions? Did you learn anything new about investing from your broker over the past year? Can you get investment advice if you want it?

Can you graduate from an automated adviser to a dedicated financial adviser as you get older to get help with estate planning or Social Security? All told, we engineer our broker rankings to reward the firms that offer the most to the broadest group of investors.

How we chose the best online brokers and trading platforms

To start, we limit the field to brokers that offer stock, mutual fund, exchange-traded fund and individual bond trading. That's one reason you don't see the likes of Robinhood or SoFi here – you can't buy individual bonds on their platforms.

We surveyed nine firms in all: Ally Invest, Charles Schwab, E*Trade from Morgan Stanley, Fidelity, Firstrade, Interactive Brokers, J.P. Morgan Self-Directed Investing, Merrill Edge, and WellsTrade. T. Rowe Price, Vanguard and Citi Self Invest declined to participate.

The biggest, best-known firms score better overall, you'll notice. But each firm shines in one category or another, and no firm aced every one.

Best online broker overall

Drum roll, please. Fidelity landed on top this year by offering a solid mix of investment products, as well as tools and calculators for retirement planning and college savings, among other things.

The firm's fees are far from the lowest, especially if you want to buy shares in a mutual fund for which you must pay a transaction fee. But it was a competitive finisher in primary categories – investment choices, tools and education, and mobile app. And it won major points for its full range of advisory services, which pushed it to the top spot.

Interactive Brokers finished second for the second year in a row. The firm ranked first or second in the most important categories – investment choices, mobile app, and tools and education – and that helped lock in its position in the rankings.

We evaluated its "Lite" pricing plan and its website-based platform, Client Portal. But many of the firm's customers are active traders – defined by the firm as investors who make more than 120 trades per year – and they usually opt for the firm's "Pro" pricing plan and download its desktop trading platform, not considered here.

What's more, Interactive is known for its access to international markets – more than 160 developed and emerging markets – and 71% of its account holders live outside of the U.S. They're mostly interested in trading in the U.S. as well as their local markets, the firm says.

Bear in mind that our survey results combine objective and subjective criteria. We rely on the information that each firm provides, vetting the data as best we can. The scoring boils down to the weighting we assign to each data point and to each category.

Although we base our weightings on what we hear from investors and the industry about what brokerage customers currently value, not everyone will agree with what we chose to play up – or down.

Below, we walk you through the highlights and lowlights of how the brokers performed in each of our categories, listed in order of significance to the final score.

Online brokers with the best investment choices

More is more in this category: The broader the range of investment offerings, from corporate bonds to mutual funds, ETFs and even cryptocurrencies, the better the broker ranked in this category, which makes up 20% of the final score.

Fidelity and Interactive Brokers came out on top. In addition to a robust roster of the usual securities available, both firms also offer better yields than peers on cash that's sitting idle in brokerage accounts (the so-called sweep account).

You can also buy a fraction of nearly every publicly traded U.S. stock or ETF. So instead of shelling out more than $1,000 for a single share of Netflix (NFLX) stock, for instance, you can buy a $1 slice (roughly 0.001% of one share). And you can set up a recurring purchase of shares in ETFs and stocks.

Plus, though it didn't count for much in this category score, Fidelity and Interactive Brokers were the only firms in the survey to offer cryptocurrency trading of select digital coins – the actual currency, not crypto futures or ETFs that track cryptocurrency prices. (Schwab says it expects to offer direct access to crypto in 2026.)

For the record, fractional-share trading is available at other firms, too, but to varying degrees. At Firstrade, customers can buy slices of nearly every publicly traded stock and more than 1,200 ETFs.

Schwab customers can only buy slices of S&P 500 stocks; at J.P. Morgan Self-Directed, fractional purchases are limited to S&P 500 and Nasdaq-100 stocks and all ETFs; and E*Trade investors can buy fractions of 221 ETFs for a $25 minimum investment.

Of course, not every investor wants or even needs access to every investable security. Mutual fund investors will find abundant choices at Charles Schwab, Fidelity and Interactive Brokers, for instance. And buyers of individual corporate bonds will find the greatest number of choices at E*Trade. Municipal bond investors should go to Interactive Brokers or E*Trade.

Want to invest in foreign stocks? You're out of luck at most of the firms we surveyed; only Schwab, Fidelity and Interactive offer access to foreign markets.

Ally Invest, E*Trade and Merrill Edge suffered because they don't offer fractional-share trading of stocks. WellsTrade does, it's worth noting. But Wells and Merrill also slipped, in part, because each of their platforms offers a below-average number of mutual funds and corporate and municipal bonds, relative to other survey respondents.

Online brokers with the best tools and education

How helpful is your broker at keeping you on track with your investment plan and the rest of your financial life?

In this category, which accounts for 20% of the final score, we asked each firm whether they offered certain tools or calculators that assist in a variety of financial goals: How much should I save for college tuition? How am I doing so far on retirement savings? Can I get help building a bond ladder, figuring out how much to withdraw each year from my IRA, and reviewing the asset allocation of my entire investment portfolio?

Calculators, portfolio analyzers, screens for stocks, ETFs and mutual funds, and the like can help investors put their money to work. We scrutinized the array of educational videos, webinars, podcasts and live events, too.

Schwab and Interactive Brokers triumphed in this category. Of the nearly 40 tools and functions we queried each firm about, Schwab offers 33, including savings, tax and retirement calculators and other useful tools, such as a bond-laddering tool and a trade ticket that can be filled out and saved for later. (E*Trade offers a saved trade ticket function, too.) Interactive Brokers finished with 30.

Many are embedded in the firm's retirement-planning tool (such as budgeting and debt management) and portfolio analyst tool (such as getting an aggregate view of asset allocation and risk in your portfolio).

Both firms also got a lift from good scores on the education front. We asked the firms about educational articles and videos available on their websites, as well as how many podcasts and videos were posted in 2024. Schwab and Interactive both scored well, which helped them win the top spots in this category.

But it's worth noting that Fidelity and E*Trade were nearly as strong on education, too. E*Trade, in particular, offers a daily podcast of five minutes or less from Morgan Stanley that covers commentary on the market and other investing topics. Recent podcast headlines: "Trump's AI Action Plan"; "Will the Entertainment Business Stay Human?"; and "Asia's $46 Trillion Question."

The laggards in the tools category were Ally Invest, Firstrade and WellsTrade. They trailed the pack in the overall number of tools offered – Ally with just 11; Firstrade with 16; and Wells with 17.

Ally Invest, for instance, doesn't offer a mutual fund screener, a spending-tracker tool or a "How am I doing?" retirement-savings calculator. WellsTrade offers more than Ally in the way of tools, but you can't export statements to Excel, for instance, and it doesn't include some tools, such as one that would help investors as they start to withdraw cash for retirement.

But Wells and Ally also missed on the education side. Unlike the other firms surveyed, for instance, WellsTrade doesn't provide any educational articles on investing and trading strategies, podcasts, or educational videos.

Ally Invest fared a bit better than Wells because it does provide educational articles, but it lacks the podcasts, videos and other events that the bigger players offer their customers.

Online brokers with the best mobile app

Most brokerage customers log in to their accounts in the mobile app more often than they do on a computer, according to some of the firms we surveyed this year.

They may be just checking their portfolio balance in the middle of the day. Even so, as apps improve, we expect that investors will want to perform more and more investing tasks on their phones over time. So in this category, which makes up 20% of the final score, we explored the breadth of functionality of each firm's mobile app.

The ability to trade stocks, ETFs and mutual funds is a given; every firm's mobile app allows you to do that. And access to stock research reports in the app is pretty much de rigueur.

But can you buy stakes in bonds and crypto in the app? Does it offer stock and ETF screening, for instance, as well as a shortlist of prescreened investments to consider? Can you select specific shares you own in a stock by tax lot before you sell? Can you access a similar variety of savings, retirement, budgeting and portfolio analysis tools that are available on the broker's website? Can you deposit checks electronically into your brokerage account?

Interactive Brokers answered yes to more of our nearly 60 queries than any other firm. It won this category by a clear margin, thanks to a robust array of retirement calculators, tools for tracking spending and college savings, and a bond screener on its app.

E*Trade's offering was similarly robust; it was the only other firm to offer a bond screener on its mobile app, for one thing. It came in second, followed by J.P. Morgan Self-Directed in third place and Fidelity in fourth.

Some of the firms' apps are strong in other ways. All but three of the firms allow you to measure your portfolio's performance against a benchmark, for instance (Ally Invest, Firstrade and WellsTrade are the holdouts).

We'd be content with just three benchmarks – one for U.S. stocks, another for U.S. bonds, say, and a foreign stock market bogey. But at Interactive, you can choose among 340 in the mobile app; Merrill Edge, 35; and J.P. Morgan Self-Directed, 12. Compare that with the five indexes available in Schwab's app and three in Fidelity's and E*Trade's mobile apps.

Meanwhile, for investors in search of investing ideas, only J.P. Morgan and E*Trade offer curated lists for stocks, ETFs and mutual funds on the app.

Fidelity, for instance, has select lists available in its app for mutual funds and ETFs, but not stocks. J.P. Morgan shines again for screeners. It's the only firm, along with Interactive Brokers, to offer screeners for stocks, ETFs, mutual funds and bonds in its mobile app.

Online brokers with the best advisory services

Many investors these days want help with their investments. Brokerage firms tend to offer tiers of service. These range from an all-digital, or automated, service (call it a robo service) to a blend of digital and a little human advice – what we call a hybrid offering – to a more full-service type of account that in some cases offers customized portfolios and a dedicated investment adviser.

We scrutinized the full gamut of offerings at each firm by dividing the overall advisory category into three parts – digital, hybrid and full service. The overall category accounts for 12.5% of the final score; digital service makes up just over half of the category score, and hybrid and full services account for the rest of the category score.

The range of advice varies at each firm. Firstrade doesn't offer any investment advice at all. And most firms offer only two of the three tiers of advice. J.P. Morgan Self-Directed, for instance, doesn't have a robo, but it offers a hybrid service as well as full-service-type plans through J.P. Morgan Wealth Management.

Merrill Edge has a robo (Merrill Guided Investing) and a hybrid (Merrill Guided Investing with Advisor). But it doesn't offer full-service advice – though that is available at a different Merrill business.

Similarly, Wells Fargo's WellsTrade has Intuitive Investor, its all-digital advisory, but no full-service advice. That's available through a different Wells business, so it wasn't included in the survey.

The only two firms to offer all three tiers of advisory services – again, digital, hybrid and full service – ran away with the medal in this category: Fidelity and Schwab. Indeed, Fidelity seems to have an advisory service to suit every kind of investor and account size. The breadth of offerings helped Fidelity come out ahead in this category. But in truth, both Fidelity and Schwab stood out in each tier, winning the top spots across the board.

Bear in mind that our scoring system weighed the nuts and bolts of the services at each firm – investment minimums, variety of portfolios, fees, expense ratios of fund holdings and access to estate-planning experts, among other things – not the portfolio returns.

Let's start with digital and hybrid services. Fidelity offers two kinds of automated advice: Fidelity Go and Fidelity Managed FidFolios. But Fidelity Go steals the show. For as little as $10, customers can get access to 16 different kinds of portfolios filled with funds that charge 0% expense ratios. What's more, accounts with less than $25,000 pay no advisory fee.

Managed FidFolios is a more sophisticated introductory offering – a team of experts manage an all-stock portfolio for you – and requires $5,000 to start. Choose among three actively managed strategies (which charge 0.70% each in annual advisory fees) and five direct indexing portfolios (0.40%), a strategy that involves owning the individual securities that make up a benchmark, instead of owning a mutual fund or ETF, which allows for active tax-loss harvesting (selling losers to offset gains elsewhere).

Fidelity's hybrid service is part of its Fidelity Go offering and kicks in when balances top $25,000. The fee jumps to 0.35% of assets per year, but that gets you unlimited one-on-one "financial coaching to help achieve retirement or other investing goals," according to the firm. Many of those coaches are certified financial planners.

By contrast, in its favor, Schwab's robo, Intelligent Portfolios, charges no annual advisory fee, and investors can choose among 81 diversified portfolios filled with cheap ETFs. Schwab's next step up in service, like Fidelity's, requires a $25,000 minimum. Intelligent Portfolios Premium, as it's called, requires a one-time $300 planning fee on top of a $30 monthly advisory charge. You get the same 81 diversified ETF portfolios as in the robo-advisory service, but the big plus is you have access to a team of financial planners.

At most firms, you must fork over more money to get a dedicated human adviser. That minimum varies from $100,000 at Ally Invest and J.P. Morgan Self-Directed to $500,000 at E*Trade, Fidelity and Schwab. (Firstrade, Interactive, Merrill and Wells don't offer these services.)

At the full-service level, Schwab offered most of the features we were looking for: A dedicated adviser, one-on-one access to specialists for bond and options trading as well as an estate-planning expert, and low advisory fees. For an account with a $750,000 balance, Schwab charges just 0.80% a year.

E*Trade and J.P. Morgan each had competitive offerings at the full-service level. J.P. Morgan has a lower minimum going for it – typically $100,000 for a dedicated adviser – plus access to experts on estate planning and bond and options trading, and a customized portfolio. And investors can choose among advisers at Chase bank branches and at different divisions of J.P. Morgan Wealth Management. Some charge annual advisory fees as low as 0.50% for a $750,000 balance; others cost more (as much as 1.45% a year).

E*Trade's full-service offering from Morgan Stanley Wealth Management stacked up nicely, too, with multiple experts at the ready to help you. Its 2% annual advisory fee for an account with a $750,000 balance was high, however. E*Trade says Morgan Stanley financial adviser rates vary, so it chose the highest rate by default. Of course, in exchange, you get access to Morgan Stanley's full breadth of products and services.

Online brokers with the best research

What some investors consider useful research may be gobbledygook to others. Some may put greater emphasis on technical analysis, for example – the practice of identifying trends or patterns in price charts to spot investing risks and opportunities.

Others may favor fundamental analysis, examining a company's financial statements and industry trends, say, to evaluate it as a potential investment. And then there are those who might find that news alerts and stories can be useful for pinpointing investing prospects, too.

To that end, in this category (12.5% of the final score), we asked the brokers to list the research sources they offer their customers for specific single stocks – Apple (AAPL), Goldman Sachs (GS), Honeywell International (HON), Alibaba Group Holdings (BABA) and WD-40 (WDFC) – as well as the SPDR S&P 500 ETF (SPY) and the Fidelity Contrafund (FCNTX).

We also asked about how many stock and bond market outlook reports were available to do-it-yourself brokerage customers, as well as any ongoing market commentary or analysis. We gave extra credit to firms that provide access to in-depth fundamental research (because that's the kind of research we favor).

That last question helped boost the scores of some firms, including E*Trade, Merrill Edge, Schwab and J.P. Morgan Self-Directed.

Merrill Edge offers access to proprietary analysis of single stocks from BofA Global Research, but only to customers who meet a $100,000 balance threshold. BofA market outlook and commentary reports, however, are available to all customers. We knocked the firm (only by a bit) for this balance requirement, but it was enough to push the firm from a first-place tie with E*Trade to a second-place finish.

Schwab finished a nose behind for third. Schwab offers brokerage customers solid bond and stock market outlooks and commentary from its asset management division, but we discounted Schwab's proprietary stock reports a little because the stock ratings are based on quantitative, not qualitative, measures.

Interactive Brokers blows away the competition with the stratospheric number of research resources it offers its retail customers: 57 reports on Apple and 38 for Goldman Sachs, for example, and a whopping 1,452 for reports on the outlook for the bond market.

By contrast, among all of the firms we surveyed, the median number of reports was three each for the single companies and two for bond market outlooks. But Interactive missed getting extra credit for in-depth fundamental stock analysis, and that's why it finished behind E*Trade, Merrill and Schwab.

Online brokers with the best customer service and security

In our digitized world, customer service takes many shapes. There's chat and email. You can pick up the phone. In some cases, you can even talk face-to-face with a human being at a local branch. No matter the method, one thing's for sure: When you have an investing-related question that you can't answer on your own, you want a prompt answer. Period.

That's why this category, which amounts to 10% of the final score, included questions such as the average telephone hold time for a customer service representative and average email and chat response time.

We also asked about the percentage of time that a customer was able to get an answer to their question at the first point of contact with a live representative, among other questions.

Charles Schwab won for customer service thanks to its 400 branches, a phone line with 24/7 live service, a 33-second average hold time on the phone (below the average 65-second hold time for the firms we surveyed), and a less-than-12-hour response time for email queries (below the average 33-hour response period). Thousands of clients walk into Schwab's retail branches a day, the firm says, and over the first half of 2025, it fielded more than 14 million calls.

Merrill Edge came in second. On top of a 24/7 live representative customer-service line, the firm says that it has a 90% success rate in answering customers' questions at the first point of live contact. It was the best response rate of the group, just ahead of Ally Invest (89%).

To be fair, we should note that some firms didn't disclose this figure, including Fidelity, Firstrade and J.P. Morgan Self-Directed.

J.P. Morgan Self-Directed was hot on Merrill's heels, boosted in large part by a robust training program for its representatives. Depending on the representative's role, the firm says, some training programs last for two-plus years. A below-average phone-line hold time of less than 30 seconds and a roughly 12-hour average response time to email queries helped, too.

Firstrade, Ally Invest and WellsTrade faltered in this category for different reasons. Each of the firms reported shorter training periods for representatives than the other brokers, for a start. Ally and Wells also reported above-average wait times for representatives on the phone.

Security accounts for one-tenth of this category's score, but it's a growing concern as scammers and hackers get better at what they do. We gave extra credit to firms that make two-factor authentication mandatory, namely Ally Invest, E*Trade, In-teractive Brokers and J.P. Morgan Self-Directed. The extra step can be annoying, but it is becoming increasingly necessary.

To be clear, the other firms in the survey offer two-factor authentication as well; you just have to opt in and set it up.

Online brokers with the best commissions and fees

A little over a decade ago, this category accounted for 25% of the final score. This year, commissions and fees make up just 5%. Everyday investing transactions – buying and selling stocks, shares in ETFs or mutual funds, and bonds – are free, or nearly so. And the tasks that do incur a levy – wiring money, say, or having a representative place a bond or options trade for you over the phone – are likely to be infrequent.

And yet, there are some hidden trading costs. Embedded in the price of an individual bond you buy, for instance, may be a transaction cost, such as a markup (the difference between the price a broker-dealer paid to buy a bond and sell it to an investor) or a selling concession (a fee paid to the seller or distributor of the bond you're buying).

Similarly, the brokerage firm may receive a small payment to route trades to certain securities dealers, which can cost you in the form of slightly less favorable prices. These levies are small, but they can add up, and what you don't outlay in fees you can put to work toward your investing goals. So we asked the firms about these hidden transaction costs, among other charges, as well as what they charge for margin interest rates and options contracts.

As expected, the contest was tight. J.P. Morgan Self-Directed skated past the others, largely because it charges middle-of-the-road fees – rarely the highest or lowest on any query. FirstTrade, on the other hand, though it ranks seventh in the pack on fees, boasts the lowest charge for broker-assisted stock and ETF trades ($19.95) and options contracts ($0).

WellsTrade brought up the rear in this category. Its margin rates are above average and bond purchases include a markup, among other things.

Best online brokers for your specific needs

Best for index fund lovers. Fidelity and E*Trade both have suites of zero-fee index funds, but only individual investors with brokerage accounts at those firms can buy them.

Fidelity has four zero-fee index funds – a total market index fund, an in­ternational stock fund, a small-company stock fund and a large-company stock fund.

E*Trade has five no-fee index funds available exclusively to self-directed E*Trade investors. If you start working with a Morgan Stanley adviser, you can take them with you (E*Trade has been a Morgan Stanley-owned company since 2020). The five funds include strategies that track the performance of international markets, U.S. bonds, municipal bonds, large-company shares and the total stock market.

Best for individual bond buyers. Of all the firms in our survey, Interactive Brokers offers the greatest number of municipal bonds. But buyers of corporate debt should consider E*Trade. What's more, both firms charge no markup on corporate or muni bond transactions. At E*Trade, Treasuries trade for no fee.

Best robo advisory. Fidelity prevails with its digital offering, Fidelity Go, which charges no annual advisory fee for balances under $25,000 and includes 16 different portfolios (from conservative to aggressive allocations). The kicker: The portfolios hold only no-fee mutual funds, so you're not shelling out anything in annual expense ratios.

Fidelity gets another nod, too, because its most aggressive Fidelity Go portfolios hold 100% of assets in stocks (other firms have a 94% to 96% allocation to stocks).

But Schwab Intelligent Portfolios merits an honorable mention. There's no annual fee, though it takes $5,000 to open an account. And the 81 available portfolios hold low-fee exchange-traded funds that charge annual expense ratios between 0.04% and 0.16%.

Best all-in-one bank and broker. Several firms offer benefits to customers who bank and broker with them. But Merrill Edge and its parent, Bank of America, through its Preferred Rewards program, offer the best benefits.

We like, for instance, that the bonuses start when you have a three-month combined average daily balance of just $20,000 – at the bank and in any Merrill investment account. The pluses include a bump in cash rewards on Bank of America credit cards, priority on customer service phone lines, and interest rate discounts on auto loans and home equity lines of credit.

As your balance grows, the perks improve and expand. When your average daily balance hits $100,000 or more, on top of bigger interest rate breaks on loans and bonuses on credit card rewards, you can get a discount on robo-advisory fees at Merrill Edge, a boost in the interest rate on a Bank of America Advantage Savings account and a waiver on ATM fees at non-BofA banks in the U.S. and anywhere else in the world.

Best for options traders. Active options investors should favor Firstrade, which doesn't charge a contract fee like the others. Most of the other firms we surveyed charge a 0.65-cent fee per contract. Ally Invest is one exception; it charges a 0.50-cent contract fee.

Best for cash hoarders. Fidelity gets kudos for paying the highest yield on idle cash sitting in brokerage accounts. In late May, the firm's so-called sweep accounts – the account that your broker automatically "sweeps" any cash into – paid a 3.94% yield. Some of the other firms, by contrast, offered a 0.01% yield. Interactive Brokers stood out, too, with a 2.83% yield on its sweep account.

Best for investors just getting started. None of the firms we surveyed require a minimum to open an account, but we favor Fidelity for investors with small balances for a couple of reasons.

For starters, for as little as $1, you can buy slices of more than 7,000 stocks and exchange-traded funds. No other firm except Interactive Brokers can match that. The other plus: The firm's digital advisory service, Fidelity Go, has the lowest minimum – just $10 – to get started. In addition, there's no annual advisory fee if your balance is below $25,000, and the funds in the portfolios don't charge annual expenses.

Best for mutual fund investors. Interactive Brokers and Schwab offer the biggest roster of mutual funds for no load and no transaction fee. But we want to give Ally Invest, E*Trade, Firstrade and J.P. Morgan Self-Directed a shout-out, too.

All the funds on each of these platforms – albeit a shorter list of funds than Schwab or Interactive offer – trade for no fee.

Best for margin traders. If you're big into trading on margin – a strategy that allows an investor to borrow money from a brokerage firm to purchase securities – Interactive Brokers' Lite tier charges just 6.83% for a margin balance of less than $100,000, a little over half the going rate at the other firms for the same balance.

Best for investors with foreign addresses. Americans living abroad sometimes have problems opening brokerage accounts at U.S. financial firms. But at Interactive Brokers, citizens and residents of nearly every country can open accounts.

And the firm offers overnight trading of stocks and ETFs from 8 pm to 3:50 am Eastern Standard Time, Sunday through Friday, which makes it more convenient for overseas customers in faraway time zones to buy and sell shares.

Best for ETF investors. Stick with Fidelity, Interactive Brokers and J.P. Morgan Self-Directed, which allow you to buy and sell fractional shares of thousands of ETFs. (Firstrade and E*Trade allow you to buy slices of ETF shares, too, but fewer funds are available.)

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When people first think of donor-advised funds (DAFs), they naturally turn to the national funds — the big-box stores of the donor-advised world. Yet, in 2021, nearly 30% of our new accounts at DonorsTrust rolled over from large, national DAF providers, such as Fidelity Charitable.

Community foundations and Jewish federations were among the first to offer donor-advised funds in the 1930s. Institutions caught on over the past three decades, and DAFs have been flourishing ever since. As of 2020, there are an estimated 1,000 DAF-sponsor organizations in the United States, according to the National Philanthropic Trust.

With a sharp increase in charitable giving over the past two years, new generations are looking for ways to donate to charity using donor-advised funds, whether it be with a mission-driven fund or donating to charities at the local or national level. Below are some of the most important questions to ask when considering whether a donor-advised fund makes sense for one’s unique charitable goals.

Q: First, why should I consider using a DAF sponsor group to meet my philanthropic goals?

Answer: DAFs work as an investment account for charitable organizations near and dear to your heart, with the added bonus of immediate tax deductions when you contribute money, securities or other assets. Those funds can then undergo tax-free growth until you decide to put them toward the charity of your choosing. This is particularly beneficial given the state of philanthropic giving in the United States, where some charities are struggling to make ends meet.

Through DAFs, you can help non-profit organizations weather the storm by supplying far-reaching funds that pay out over time and benefit the rainy-day needs of charities. Along with being one of the fastest-growing and most effective ways to give, many DAF-sponsor groups can provide insight and guidance for the type of charities you want to give to.

Q: What are the types of sponsor groups I can use to create a DAF?

Answer: There are three different types of sponsor groups a donor can choose from. The first are community foundations, founded by and for people in a particular community. Community foundations vary in size, capacity and reach but are a good option for donors with a variety of interests and financial resources, lending to long-term assets for a particular sector of society in their geographic area.

Second are national funds, which differ from community funds in a few ways — whereas other sponsors provide DAFs in addition to their existing work, national funds solely operate to service DAFs with a key focus on fundraising and grantmaking. There are two types of national funds: funds affiliated with financial institutions, such as Charles Schwab or Vanguard. These are known as commercial gift funds. And non-commercial organizations, which on the other hand are national funds that work independently, like the National Philanthropic Trust and United Charitable, or those that are faith-based, including the National Christian Foundation or Jewish National Fund.

Last but not least are mission-driven funds. And they are driven by just that — a mission, either related to a particular issue, faith or institution. Unlike community foundations, these groups go beyond an individual community and are organized behind a shared identity or cause that extends outside certain geographical areas. Some of the most common types of mission-driven funds you may be familiar with include hospitals, universities, rotary clubs and topic-driven non-profit organizations.

Q: What types of donors should consider using a community foundation sponsor group?

Answer: If you have a close connection to a certain city or town, or a family that has roots in an area you’d now like to give back to, utilizing a community foundation is the right choice for you. These foundations have a keen understanding of the community’s needs and a history of overcoming obstacles with your donation. The ability to garner that knowledge and vet local non-profits allows you to feel secure in the knowledge that your charitable choices are best serving the community you love.

Additionally, community funds provide contributors not only with DAF opportunities but field-of-interest funds, earmarked funds and scholarship funds among others — meaning your giving can make a major impact just the way you want it to.

Q: I want to target my giving to a specific cause, such as childhood hunger. Which type of sponsor group is best suited for me?

Answer: Through the use of single-issue non-profits, mission-driven funds are able to better connect you to your goal of supporting this particular cause, as well as a larger network of contributors that wishes to do the same. Selecting a mission-driven fund means you know that the organization believes in the efforts and issues you do, and has the vetted experience and ability to make a difference.

This expertise and guidance can help you make the smartest giving choices with your money, including tying DAF funding to further giving by the family or donor, or reaching a larger specific goal, such as impact investing or international giving.

Q: What else should I know when selecting a DAF sponsor group?

Answer: Here are additional key considerations to keep in mind when choosing which sponsor group is best for you:

• Some community foundations are better equipped than others. Smaller foundations in more rural areas may have less technological and administrative capabilities, while others have resources where you can manage your DAFs online.
• National commercial funds do not always offer individualized support. While they can provide unique grantmaking services, many do not offer expertise on giving in particular area or to a specific issue. Because of this, they do not provide networking opportunities with other like-minded donors that you can get within other groups.
• Community foundations can vary in many ways. This can include in investment costs, ability to accept certain assets and DAF minimums. Make sure you check out these details before selecting which community foundation is best for you.
• Similarly, national fund resources and capabilities also vary. Each can offer a number of different features and benefits, minimum-fund amounts, a variety of investment options, and different payout rules. If you have a wealth manager or adviser, they may not have access to all DAF sponsors, and can be compensated differently by each.
• Want your money to be put to work quickly? Mission-driven-fund providers — also known as single-issue — have the highest payout rates among the various types of providers: 28.8% in 2019 compared to 16.4% for community foundations in 2019 and 24.2% for the national funds. The higher payout rate suggests this type of fund is good for donors keen on putting their charitable dollars into action quickly toward a cause they believe in.

Donor-advised funds are one of the fastest-growing financial tools on the market — and for good reason, as the tool helps givers simplify, secure and grow their charitable dollars. Picking the right partner in your giving comes down to what you value the most.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Fidelity Investments just made a major splash by announcing they will allow trading in Bitcoin in the 401(k) plans they administer starting midyear.

This makes Fidelity the first major plan provider – though almost certainly not the last – to allow trading in Bitcoin. News was scant as to whether other major cryptocurrencies such as Ethereum would eventually be allowed in Fidelity 401(k) accounts. For now, the focus is on Bitcoin.

Fidelity is the largest player in 401(k) plans by a country mile, with more than $2.4 trillion in plan assets. So, the introduction of Bitcoin into a 401(k) is a big deal and opens vast new pools of liquidity to investment in the blue-chip cryptocurrency.

But before you start licking your chops, there are a couple questions to consider.

Will Bitcoin Be Available in My 401(k)?

A 401(k) plan might look like a brokerage account, but they are managed, administered and regulated very differently. Remember: 401(k) plans are the primary savings vehicle for millions of Americans, and as such, the government regulates them not all that differently than it does traditional pension plans.

The Employee Retirement Income Security Act of 1974 (ERISA) sets the rules here, and it requires that the plan have a sponsor, an administrator and a fiduciary. The sponsor creates the plan, the administrator handles the day-to-day management, and the fiduciary ensures that the plan is being run in the best interests of the participants. (Often your employer or a related party will fulfill one or all of these roles).

None of these are generally Fidelity’s job. Fidelity role is that of a plan provider and custodian. They control the basic infrastructure that makes a 401(k) plan possible. They create accounts for plan participants and handle the buying and selling of investments.

But importantly, Fidelity doesn’t choose what investments are available in your company’s plan. That’s the fiduciary’s job. Fidelity can make Bitcoin available on its platform, but it’s up to your plan fiduciary to decide whether having cryptocurrency in your 401(k) is in the best interest of you and other participants, or whether to offer you other nontraditional investments, for that matter.

Plan fiduciaries tend to be stodgy and conservative. It’s their job to be a sober voice of reason. So, not every fiduciary is going to be in a hurry to make Bitcoin available as part of their 401(k) plans.

Especially not when the government is giving it a leery eye.

"The Department of Labor says it expects to open an investigation of plans that offer participants investments in cryptocurrencies," says Joy Taylor, Editor of the Kiplinger Tax Letter. "It will ask fiduciaries to demonstrate how they met their required duties of prudence and loyalty when choosing a cryptocurrency investment option for plan participants."

Indeed, days following the announcement, a Labor Department official sounded the alarm.

“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, told The Wall Street Journal.

In short: If your employer’s plan is held at Fidelity and you want to buy Bitcoin within your 401(k), you might have to give your HR department a little nudge.

And if your employer’s plan is held anywhere other than Fidelity … well, for right now, you’re still out of luck.

Should You Buy Bitcoin in a 401(k)?

“Can” and “should” are two very different things.

Your tax-deferred retirement dollars are precious. Given their ability to compound tax-free over time, a dollar in your 401(k) plan is more valuable than a dollar in a taxable account. You don’t want to be reckless with that particular pool of money.

That said, let’s say that you believe in cryptocurrencies and that you consider Bitcoin an important long-term piece of your asset allocation. Holding that Bitcoin allocation in your 401(k) isn’t a bad idea.

The tax regime surrounding cryptocurrency is still very much a work in progress, and if you’ve ever had to report crypto gains or losses on your tax return, you’re no doubt well aware of how burdensome the recordkeeping can be. If you’re committed to owning Bitcoin, then owning it in a tax-deferred account certainly makes your life easier come tax filing season.

Even then, basic common sense should apply here. Don’t buy more Bitcoin than you should simply because you can. You don’t want to put your retirement at risk in what is still very much a new asset class.

But if you’ve determined a prudent amount to own, then holding Bitcoin within your 401(k) can be a smart way to do it.

A low-cost brokerage account will allow you to buy individual stocks, mutual funds, exchange-traded funds and other investments outside of your employer’s retirement account. You can open an account, deposit money and execute trades online with a computer, a tablet or even a smartphone.

But first, you have to pick a brokerage firm. The one that’s right for you depends on the kinds of services you want. For starters, check out Kiplinger’s annual survey of online brokerage firms, which rates nine online brokers on a variety of measures, from fees to breadth of investment offerings to customer service.

What You Need to Open an Account

Brokerage firms make it easy to open an account online, as long as you meet a few requirements. You must have a valid Social Security number and a legal U.S. residential address within the 50 states, the District of Columbia or Puerto Rico, among other things.

You’ll have to choose whether you want to open a taxable (non-retirement) account or a retirement account (such as a traditional or Roth IRA). Both types of accounts allow you to buy and sell stocks, mutual funds, ETFs and other investments.

One thing you won’t need is a ton of money. Many online brokerage firms, including Schwab and Fidelity, don’t require a minimum to open an account, though some firms may require a modest balance of, say, $500 or $1,000. And at most brokerages, trading is free.

You can contribute as much or as little as you want to a taxable brokerage account in any given year. But retirement accounts come with annual contribution limits. For example, you can invest up to $6,000 in an IRA each year if you’re younger than 50 years old or $7,000 if you’re 50 or older.

Taxes on Stock Trading

There are tax consequences to consider if you trade securities in a taxable brokerage account. Any profits you pocket when you sell an investment will incur capital gains taxes. How much you owe depends on how long you’ve owned the investment. (Trades in a traditional or Roth IRA brokerage account don’t create a taxable event as long as the money stays in the account.)

Suppose you buy 10 shares of Apple stock in your brokerage account for $165 per share, and the price appreciates to $300. Your shares are worth $3,000, for a gain of $1,350. If you sell all of your shares and you’ve owned them for one year or less, you’ll pay the short-term capital gains rate—your ordinary income tax rate—on those profits. But if you’ve held the shares for more than one year, you’ll pay a lower tax—the long-term capital gains rate—of 0%, 15% or 20%, depending on your marginal income tax bracket.

What if the stock drops in value and you sell? You can use those losses to offset any capital gains realized on other investments, as long as you match up short-term losses with short-term gains and long-term losses with long-term gains. If you end up with a surfeit of losses, you can deduct up to $3,000 in losses from your income and carry over unused losses on future tax returns.

Hiring a (Robo) Pro

If you’re nervous about trading stocks or funds on your own, or if you just don’t want to bother, consider the low-fee advisory services driven by computer algorithms that many brokerage firms offer. You fill out a short online questionnaire about how long you plan to invest (a “time horizon”) and your tolerance for risk, and a computer model recommends a portfolio of low-cost ETFs that are right for you.

These robo-advisers, as they’re commonly called, charge low annual fees and do all the investment work for you, from rebalancing your portfolio to shifting your assets to an appropriate mix over time as you age. Brokerage firm Betterment, for example, offers a robo service for an advisory fee of 0.25% to 0.40% per year, depending on the account balance, and its portfolios charge a typical annual expense ratio of 0.11%. For our take on 12 robos, see Find the Right Robo Adviser for You.

How Your Account is Protected

Assuming your brokerage firm is a member of the Securities Investor Protection Corp. (and most are), your account is insured in the event your brokerage goes out of business.

Brokerages are required by law to keep customers’ investments separate from securities owned by the brokerage firm, an arrangement that offers some protection against fraud. But if the firm fails and customers’ assets go missing due to theft, fraud or unauthorized trading, SIPC will protect each account held by a customer for up to $500,000 for securities and cash (including a $250,000 limit for cash only). SIPC won’t protect you against investment losses, and it doesn’t get involved until the firm has exhausted all other options, such as merging with another brokerage firm.

The Risks of Trading on Margin

If you followed the meteoric rise of GameStop stock and other so-called meme stocks last year, you probably heard a little about margin trading. When you trade on margin, you borrow money from your brokerage firm—using your cash and securities as collateral—to buy securities. These accounts allow you to increase your buying power (regulators allow you to borrow up to 50% of the purchase price), but typically you have to apply and qualify for one at your brokerage firm.

Margin trading is mostly for sophisticated investors or speculators because it’s risky—you can lose more than you invested. And margin accounts charge high interest rates (Fidelity charges 8.325% on loans of up to $24,999). Margin rates are variable, too, and they’ll head higher when the Federal Reserve hikes short-term interest rates. There’s a minimum amount of collateral to maintain as well. Just how much can vary: The Financial Industry Regulatory Authority, the self-regulatory arm of the brokerage industry, requires that you keep a minimum of at least 25% of the value of the margin securities, but some firms call for more.

If the market heads down, you may have to add cash or securities to restore the minimum maintenance amount—the dreaded margin call. If you don’t, your broker has the right to sell your investments to cover it. That could amplify your losses, because your investments will likely be sold at a loss. Plus, you’re still on the hook to pay the margin loan back to the broker.

Interest rates are rising and stock prices are falling, so investors naturally start thinking about bonds. But be careful.

Peter Lynch, the manager of Fidelity Magellan fund during its spectacular run in the 1980s, once said, "Gentlemen who prefer bonds don't know what they are missing."

Generally, I agree. Dow 36,000, the book I coauthored, made the case that, because history shows that stocks and bonds are equally risky over the long term and that stocks return an average of four to five percentage points more a year, the obvious choice is stocks.

But there are reasons to own bonds. First, in the short term, bonds fluctuate much less than stocks, and you may need a reliable investment because you have a large outlay coming up – a college tuition bill or a down payment on a house, for example.

Second, bonds provide ballast for a portfolio. According to research by Russell Investments, since 1997 the correlation between stock and bond returns has been mainly negative. In other words, when one goes up, the other tends to go down, and vice versa. As a result, you get a smoother ride. Finally, bonds supply reliable income – though recently not much.

Over the past decade, bonds have been especially unproductive investments. Since 2012, the annual yield on a Treasury bond that matures in 10 years has averaged just 2% per calendar year and has never exceeded 3%.

The Vanguard Intermediate Bond Index Admiral (VBILX), a popular mutual fund that owns both government and corporate bonds and charges expenses of just 0.07%, has returned an annual average of just 3.1% over the past 10 years, including interest payments and gains and losses from selling assets. (Nonetheless, I'm a fan of this fund for the long term.)

Lately, rates have perked up. Moody's Seasoned Aaa Corporate Bond yield for the safest debt jumped from 2.5% on Dec. 3 to 3.3% on March 3. That's still only about half the average of the past 40 years.

What Are Bonds?

A bond is an IOU, a promise by a business or government to repay an investor for a loan – typically on a specific date (maturity) and at a specific interest rate (coupon, or yield).

Bonds are actively traded, so a 10-year, $10,000 bond issued with a coupon of 3% might trade a few years later at $7,000. Why? First, the borrower might get into financial trouble, and investors doubt they will be repaid. This kind of credit risk applies mainly to corporations or state, local or foreign governments – not, so far, to the U.S. Treasury. Second, interest rates may rise after you buy your bond, so new, similar bonds are issued at higher coupons. Higher rates make your old bond less attractive, so its price on the market falls.

If you hold your bond to maturity, the lower price in the interim won't matter; you'll get the bond's full face value when it comes due. But if you have to sell sooner, you'll take a loss.

Bonds present one other kind of risk: Inflation diminishes the value of the dollar, so that even when you get your $10,000 at maturity, it will have the purchasing power of, say, $6,000. Some decline in value is inevitable, and that expectation is built into the bond's yield, but inflation may be worse than the market anticipates.

Right now, long-term inflation expectations are extremely low, even though the consumer price index (CPI) soared 7.9% in the 12 months that ended Feb. 28. The St. Louis Federal Reserve Bank extrapolates from TIPS, or Treasury inflation-protected securities, that the annual increase in CPI over the next 10 years will be about 2.7%.

My view is that intermediate (five- to 10-year) rates will probably rise another two or three points in the next few years, making bond yields much more attractive.

How Do I Invest in Bonds?

The choices are vast, but, for many investors, buying individual bonds at the riskier end of the debt spectrum – high-yield or junk debt, for example, or bonds issued by shaky governments – is just too adventuresome. Unless you spend a lifetime examining the nuances of particular bond issues, you will probably get better returns at much the same risk with stocks. I am not fond of individual municipal bonds, either. Yes, interest is exempt from federal taxes, but munis, accordingly, have lower yields.

Buying individual government bonds through a broker or directly from the U.S. Treasury is a reasonable option. But owning a bond, or even several, locks you into today’s rates or forces you to take a loss if rates rise.

The best alternative is a mutual fund, whose assets evolve. For instance, if a bond fund has an average maturity of five years, about one-fifth of its holdings will come due in any 12-month period. The fund manager (or the computer algorithm, in the case of index funds) will then decide to buy new bonds with the cash from its maturing bonds, and, if rates are rising, those bonds will have higher yields.

And a fund manager can shift to higher yields by deploying cash from new investors, who tend to flock to bond funds as rates rise. Some of the best funds leaven their safer holdings with riskier debt to boost yields.

When looking at specific funds, decide how much volatility you can tolerate by checking out the duration, a figure expressed in years that indicates the sensitivity of a fund's portfolio to interest rate increases. For example, the Fidelity Long-Term Treasury Bond Index (FNBGX) has a duration of over 18 years, which means if rates rise 1%, the fund's value will fall about 18%. That's risky. (The value, of course, will shoot up if rates fall.)

Although I have been impressed over the years with many active bond fund managers, the expenses they charge can eat up returns when yields are low. For example, one of the largest funds, the Pimco Total Return (PTTAX), which owns a mix of high-quality government and corporate bonds, charges 0.8% and has had an average annual return over the past five years of 3.0%. In the same asset category, I like the Fidelity Investment Grade Bond (FBNDX) better. Expenses are 0.45% for a fund whose average annual return for the past five years is 3.6%.

By contrast, the Vanguard Long-Term Corporate Bond (VCLT), an exchange-traded fund based on an index, has an expense ratio of just 0.04%. It's an excellent fund if you are willing to accept more risk. Holdings are investment grade, but just barely, with 88% of assets rated A or BBB. And the fund has a duration of more than 14, so it's sensitive to rate swings. But more risk, more reward: The fund has returned an annual average of 5.4% over the past five years.

Also recommended is the T. Rowe Price Total Return (PTTFX), which has about one-fourth of its assets rated below investment grade. With an expense ratio of 0.46%, the mutual fund has returned a five-year average of 4.0%. Its bonds mature in an average of eight years, so if rates rise, the portfolio's yield will rise, too.

Another way to protect against rising interest rates is the SPDR Bloomberg Barclays 1-10 Year TIPS (TIPX), an ETF with expenses of 0.15%. TIPS become more valuable as inflation and interest rates increase. Technically, TIPS can have negative yields, as some do now, but the income from the bond gets enhanced when inflation rises by adjustments to the principal.

If rates do rise, returns may soon reach the 5% range for many bond funds. But higher rates, remember, also have the effect of depressing economic growth, which in turn can force borrowers into default. Bond investing is always a matter of balance: long versus short maturities; risky versus safer credits. No more so than now.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. He owns none of the securities mentioned. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. You can reach him at James_Glassman@kiplinger.com.

Self-directed IRAs are not for the average retiree or the faint of heart. These specialized retirement accounts let investors do things they can't in an ordinary IRA, like invest directly in alternative assets, including cryptocurrencies, real estate, gold or a private business. A second property, which many retirees invest in for income, could be purchased as an IRA asset using a self-directed account.

Like ordinary IRAs, assets grow tax-free inside a self-directed account, giving a real estate investor, for example, a way to rent properties or buy and sell them using IRA savings while postponing the taxes on any income or capital gains.

"A self-directed IRA would delay those taxes until you withdraw from your plan so you can re-invest all the profits from the sale without having to reduce the net gains by paying taxes now," says Grey Merryman, head of wealth planning at Atlantic Union Bank's Wealth Management Division.

This freedom, however, means more ways for retirees to land in trouble with their hard-earned savings by investing in something that isn't remotely suitable. In fact, partly because of the problems with alternative assets, these accounts have a lot more going against them than for them, and even investing in a second home this way has disadvantages.

Consider these risks.

Alternative assets are often touted as a way to diversify your portfolio because they don't move in lockstep with stocks or bonds, but many alternative assets, like cryptocurrency, are inherently high risk. What's more, buying some alternative assets directly often requires a sizable chunk of your savings.

A local business or real estate typically isn't a small purchase. Sinking a lot of money into one investment is the opposite of diversification. To diversify using alternative assets like real estate or commodities, stick to mutual funds that invest broadly in them. You can buy these funds with an ordinary IRA.

You can't open a self-directed IRA with mainstream brokerage firms, like Vanguard or Fidelity. Instead, you must work with a specialty custodian, like Equity Trust Co. or IRA Financial, without any guidance or advice.

Self-directed IRA custodians don't give investment advice "because they do not perform any of the due diligence or accept any responsibility for investment selection, suitability or best interest of the investor," says Merryman.

As part of their contracts, self-directed IRA custodians only agree to handle the administrative work for your account. It's up to you to make sure the investments are appropriate, safe and legitimate, but that won't be easy to do.

Alternative assets have less government oversight and are usually less transparent than publicly traded stocks and bonds. Consequently, you will need to hire and pay an independent professional, such as an investment adviser, accountant or attorney, to vet any major investment, says Chase Insogna, president of InsognaCPA in Austin, Texas.

Not only can the investments themselves be opaque, but the Securities and Exchange Commission warns that criminals prey on those with self-directed IRAs or encourage people to set one up in order to sell them a fraudulent investment.

"Red flags for fraud can include brand new investment companies with no track record, claims for unreasonably high levels of return or a lack of third-party oversight, such as audits from a reputable CPA firm," says Ryan Shuchman, an investment adviser and partner at Cornerstone Financial in Ann Arbor, Mich.

Fraudsters often fool unsuspecting investors by telling them any investment that a self-directed IRA custodian accepts must be legitimate, which isn't true. Remember, the custodian doesn't verify the investment; it just handles the administrative work. To be clear, "this fraud isn't from the IRA custodians or the self-directed IRA, but rather the type of investments," Insogna says.

Self-directed IRAs aren't cheap. Along with transaction fees, the IRA custodian can also charge an account setup fee, an annual fee and a fee per asset held in your account.

These fees range from several hundred to several thousand dollars per year, depending on the account size, the number of investments made and the IRA custodian. The same investments made outside of a retirement account wouldn't have any of these extra fees.

As self-directed IRAs are retirement plans, you'll still need to take required minimum distributions once you turn 73. That can be tricky to do if you're investing in assets that aren't easily cashed in, although there is a Roth IRA version of a self-directed IRA. Like ordinary Roth IRAs, the self-directed version is funded with post-tax dollars for tax-free withdrawals in retirement and has no RMDs.

Even owning property in these accounts is only a good idea for an experienced real estate investor with a proven track record of successful deals, says Shuchman.

"You've got the risk both of the deal going bad plus the opportunity cost of not growing your savings in the market," he says. Real estate investors can also kiss goodbye many of the benefits associated with investing in property.

The IRS has rules for self-directed IRAs, and one of them is that you cannot use or manage the assets personally.

"If you buy a beach house as an investment, you or your friends can't stay there for free. If the wind blows off the storm gutter, you cannot fix it yourself but need to hire a professional, using cash from your IRA balance," says Merryman.

If you get caught breaking these rules, the IRS could void your entire IRA, forcing you to take out the balance, not just the problem asset, which could mean a sizable tax bill and the loss of future tax benefits on those savings.

You also miss out on tax breaks for owning the investments outright. It's the IRA that holds title to the property, not you personally, and your IRA doesn't pay taxes each year. That's a problem for real estate investors as they won't be allowed to claim annual deductions for repairs, mortgage interest, depreciation, property taxes or losses against other personal income. Meanwhile, the fees from a self-directed IRA can wreak havoc with your profit margin.

Insogna says the $600 fees his self-directed IRA charged annually ate into his profit margin for rental income, and the deferred taxes didn't seem to make up for it. Insogna regrets using a self-directed IRA for a 2009 real estate deal. "I would have been better off just cashing out my IRA balance, even with the 10% penalty [for someone younger than 59½], given the fees and missed tax breaks."

A self-directed gold IRA is your only option if you want to own or invest in physical gold or other precious metals through an IRA. To set up a self-directed IRA that holds precious metals, you’ll need to pay for more than a custodian.

In addition to the initial setup or administration fee charged by the IRA custodian, you'll likely pay an annual maintenance or storage fee each year to the custodian or depository vaulting company for the secure storage for your physical precious metals.

You’ll need to follow two IRS guidelines to include gold in a self-directed IRA:

1-You can only invest in IRS-approved gold. To avoid buying a prohibited item, consider purchasing from a company that specializes in gold IRAs. They often label qualified precious metals as “IRA-eligible." The IRS says it must be “highly refined bullion.”

• Gold must be 99.5% pure, silver must be 99.9% pure, platinum must be 99.95% pure and palladium must be 99.95% pure
• Produced by a company that’s nationally accredited
• It must be encapsulated in original packaging and include the certificate of authenticity
• Coins are uncirculated and damage-free
• Bars are manufactured to the exact weight

2- You can’t hold the gold in your possession. You are its owner, but the gold must be stored off-site in an IRS-approved depository. Your gold IRA custodian should be able to help recommend an approved depository for your investments. This is a critical aspect of investing in precious metals though an IRA.

Taking possession of the physical gold would be considered a distribution from your IRA that is subject to tax and penalties. .

Related Content

• 12 Investments No Retiree Should Make
• SIMPLE IRA: What It Is and How It Works
• How to Add Treasury Bonds, Bills and Notes to an IRA

Despite a bumpy ride, many bitcoin investors are sitting on big gains, with the cryptocurrency reaching new highs in 2021. One way to avoid the tax bite that comes with selling appreciated crypto is to direct it to charity instead, and investors are taking notice. In 2021 through September, donors contributed $158 million in crypto to Fidelity Charitable donor-advised funds, a 464% increase from the same period in 2020.

With a donor-advised fund, you can contribute assets at any time and decide later what charities to support with grants from the fund. Contributions are eligible for an immediate charitable tax deduction for those who itemize and grow tax-free in an investment account. And when you donate appreciated assets (such as stocks or crypto) that you’ve held for more than a year, you avoid long-term capital gains tax of up to 20% (see Your Guide to Giving). If you want to contribute to a charity that doesn’t accept crypto, funneling your donation through a donor-advised fund that takes crypto can bypass that obstacle.

The largest donor-advised funds accept donations of cryptocurrency, and others are expected to follow suit as the investment’s popularity grows. Fidelity Charitable has no minimum asset contribution for its donor-advised funds, to which donors can add crypto at any time. Schwab Charitable (no minimum for a self-managed account; $250,000 minimum for an account managed by an investment adviser) takes crypto contributions on a case-by-case basis. Vanguard Charitable ($25,000 minimum to open an account) accepts bitcoin from existing donors on a case-by-case basis.

Donations of appreciated crypto investments that you’ve held for more than a year, which qualify for a tax deduction of their fair market value, make the most financial sense. If you’ve held an appreciated crypto­currency as an investment for a year or less, your tax deduction is limited to the cost basis—essentially, the original amount you paid. “It would be the same net effect, tax-wise, as selling it yourself and donating the proceeds,” says Tony Oommen, of Fidelity Charitable. And because cryptocurrency is considered property, donations of more than $5,000 in value require a qualified appraisal—which may run a few hundred dollars—to claim the tax deduction, says Oommen. Ask your tax adviser to recommend an appraiser, or use a service such as Charitable Solutions.

We don't write about American Funds much on Kiplinger.com or in the pages of Kiplinger Personal Finance magazine. That's because these funds, which are managed by parent company Capital Group, are primarily sold through advisers.

For years, the funds charged a front-end load (to compensate those advisers), which made it ineligible for recommendation in our book – literally. Now, however, at some brokerage firms, you can buy a no-load share class for no transaction fee.

But American Funds is a powerhouse in the 401(k) world, where investors of all sorts can access them. Six of its funds appear among the 100 most widely held funds in employer-sponsored retirement savings plans; another seven of its target-date funds, American Funds Target Date Retirement series, also rank among the top 100. In this, our annual review of the biggest 401(k) funds in America – a list that comes courtesy of financial data firm BrightScope – we take a closer look at the most popular funds from Capital Group.

First, some explanation of how the Capital Group operates is necessary because it's unique. Using a process the company calls the Capital System, each fund is run by multiple managers, from as few as two to more than a dozen. Every manager runs a percentage of the fund's assets independently, within the broader guidelines of the fund's objectives. They're encouraged to invest alongside shareholders, too, and many managers have six figures or more of their own money invested in the funds they manage.

The company says its aim is to create a diversified portfolio that can produce good results with less volatility. It also means that even as assets grow in any given fund, the firm isn't forced to close it to new investors – Capital Group simply adds more managers. As a result, several American Funds portfolios are among the biggest funds in the country by assets.

As always, this story is meant to help retirement savers make good choices among the funds that are available in their 401(k) plan. And it is written with that perspective in mind. Look for our review of funds from other big firms in the 401(k) world: Fidelity, T. Rowe Price and Vanguard.

Now, let's explore some of the best American Funds products for your 401(k) plan … and some of the laggards, too.

Returns and data are as of Nov. 11. In each review, we refer to the symbol, returns and expense ratio of the share class that is available to most investors. The reason for this is that the share classes of specific funds offered in 401(k) plans can vary, depending in part on the size of the plan.

• Symbol: ABALX
• Expense ratio: 0.58%
• 1-year return: 18.2%
• 3-year annualized return: 12.9%
• 5-year annualized return: 11.5%
• 10-year annualized return: 10.9%
• Rank among the top 401(k) funds: #31
• Best for: Investors who want an all-in-one fund that holds stocks and bonds

Like other balanced funds, American Funds American Balanced holds stocks and bonds. It is designed, say the managers in a recent report, "to serve as the complete portfolio of a prudent investor."

In other words: Buy shares in this fund, and you're done.

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ABALX fine-tunes its blend of stocks and bonds to achieve three goals: conserve capital, provide current income and offer long-term growth. Keeping volatility at bay and delivering steady returns is also a priority. At last report, the fund held 65% of its assets in stocks, 32% in bonds and 3% in cash and other securities. The fund has a current SEC yield of 1.23%.

On the stock side, the fund typically tilts toward blue-chip companies, such as Berkshire Hathaway (BRK.B) and Royal Dutch Shell (RDS.A), that pay high dividends. But these value-oriented types of stocks have been a drag on the fund's performance as growthier stocks have been more in demand for the greater part of a decade. Still, the fund holds some shares in fast-growing companies, too, including Activision Blizzard (ATVI) and ASML Holding (ASML).

The bond side holds mostly investment-grade bonds (debt rated triple-A to triple-B). U.S. Treasuries comprise 10% of the fund's assets and act as the backbone of this side of the portfolio, which also includes corporate bonds, asset-backed and mortgage-backed securities, municipal bonds and foreign debt.

The portfolio's risk-aware positioning helped in early 2020, when both stocks and bonds plummeted in value during the pandemic's early days. American Balanced sank 22% between February and March 2020, while its typical peer – funds that allocate 50% to 70% in stocks – lost 24%. Indeed, the fund is a peer-beater. Over the past 10 years, American Balanced outpaced 85% of its peers with a 10.9% annualized return.

Critics might point out that the fund lags the return of its composite index – comprised of 60% of the S&P 500 index and 40% of the Bloomberg U.S. Aggregate Bond index – over the past 10 years. But that's understandable. The S&P 500 is top-heavy in growth companies such as Apple (AAPL), Amazon.com (AMZN), Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (FB). American Balanced owns shares in some of those companies, but nothing close to the hefty stakes these stocks take up in the S&P 500 index.

ABALX is among the best American Funds you can stash in your portfolio. As balanced funds go, it's a standout option.

Learn more about ABALX at the Capital Group provider site.

• Symbol: AEPGX
• Expense ratio: 0.82%
• 1-year return: 17.0%
• 3-year annualized return: 17.0%
• 5-year annualized return: 13.4%
• 10-year annualized return: 9.5%
• Rank among the top 401(k) funds: #3
• Best for: International stock exposure

American Funds EuroPacific Growth is the biggest actively managed foreign stock fund in the country. But the Capital System of dividing a fund's assets among multiple managers has helped the fund stay competitive. Over the past five and 10 years, for instance, the fund has largely kept pace with its typical peer: funds that invest in large, foreign companies. And it beats the MSCI EAFE index of stocks in foreign developed countries.

Morningstar recently downgraded its rating on EuroPacific Growth, to Silver from Gold, because the category has become "increasingly competitive," says Tom Nations, an associate director of research.

Certainly, there are zippier foreign-stock funds available out there. But in a 401(k) plan, the investment choices, especially with foreign-stock funds, are typically limited to an actively managed fund and an index fund. So, the question for 401(k) investors is whether an investment in AEGPX is better or worse than an investment in an international-stock index fund.

On that, the verdict is clear: EuroPacific Growth beats Vanguard Total International Stock Index (VGTSX) over the past two, three, five and 10 years. What's more, during the recent bear market in early 2020, EuroPacific Growth fund held up better, with a 31.4% loss, compared with a 33.3% loss in Vanguard Total International Stock index fund.

AEPGX is among the best American Funds you can find in a 401(k) plan, and we don't expect that to change even though a longtime manager is stepping down at the end of 2021. Even after his departure, AEPGX will still have 10 managers.

Those managers each look for high-quality companies with good long-term growth prospects in Europe and the Pacific Basin. The fund holds mostly large companies – a byproduct of the fund's hefty assets, which were $189 billion at last report. ASML Holding, Taiwan Semiconductor (TSM) and AIA Group (AAGIY) are top holdings.

Learn more about AEPGX at the Capital Group provider site.

• Symbol: ANCFX
• Expense ratio: 0.61%
• 1-year return: 29.0%
• 3-year annualized return: 17.7%
• 5-year annualized return: 16.2%
• 10-year annualized return: 14.8%
• Rank among the top 401(k) funds: #90
• Best for: Diversified equity exposure, but an S&P 500 index fund would have offered more reward for the risk over the past decade

American Funds Fundamental Investors emphasizes growth and income by investing in undervalued companies. Specifically, it favors firms that make in-demand, high-quality products, and boast good prospects for growth in sales or earnings that are underappreciated by the market.

U.S. stocks make up most of the portfolio. But the fund has the leeway to look overseas, which is why 19% of the fund's assets are invested in international companies in Europe, Canada, and Japan as well as emerging countries including Taiwan, India and Korea.

ANCFX has seven managers, but a "bevy" of recent manager changes – including three new portfolio managers named in 2020 – has resulted in a drop in rating from Morningstar analyst Alec Lucas, to Silver from Gold. Even so, Lucas still finds "this fund's flexible profile still makes it an attractive option."

We disagree. The fund has a value tilt, and value-oriented stocks have been a drag in recent years, relative to growth-oriented shares. It goes some way to explain why Fundamental Investors now lags the S&P 500 based on annualized returns over the past three, five and 10 years. But over that time, Fundamental Investors has been roughly as volatile as the index, too.

And on the income front, Fundamental Investors is only on par, offering the same 1.3% as a popular S&P 500 index fund.

Learn more about ANCFX at the Capital Group provider site.

• Symbol: AGTHX
• Expense ratio: 0.61%
• 1-year return: TK%
• 3-year annualized return: TK%
• 5-year annualized return: TK%
• 10-year annualized return: TK%
• Rank among the top 401(k) funds: #17
• Best for: Aggressive investors willing to take on extra risk for higher returns

Growth stocks have driven broad market returns for the greater part of the past decade. That should bode well for American Funds The Growth Fund of America, which invests in large, growing companies. And indeed, over the past three, five and 10 years, Growth Fund of America has outpaced the S&P 500 index.

But performance has been lumpy, and that has us betwixt and between on Growth Fund of America, which is why we rate AGTHX a Hold.

The 400-stock portfolio – Microsoft (MSFT), Tesla (TSLA) and Facebook parent Meta are top holdings – has lagged the S&P 500 in five of the past 11 full calendar years (between 2020 and 2010). That said, its good years have more than made up for the bad, and over the past decade on an annualized return basis, the fund beats the S&P 500. A $10,000 investment in the fund 10 years ago would be worth nearly $51,000 today; a similar investment in Vanguard 500 Index fund would be worth just under $46,000.

And beating the index is precisely why investors choose to invest in actively managed funds.

If we were looking at potential funds for the Kiplinger 25, the list of our favorite actively managed funds, Growth Fund of America wouldn't get very far because it lags its peers. But assessing a fund's value in a 401(k) plan is a little different. We must compare it with the alternatives that you might have available to you in the plan. And typically, the choice is between an active fund, such as Growth Fund of America, and an index fund.

Our advice: Tilt toward Growth Fund of America, but be prepared to sit tight in the lean years, when this fund lags a comparable S&P 500 index fund. Otherwise, go for the index fund.

Learn more about AGTHX at the Capital Group provider site.

• Symbol: ANWPX
• Expense ratio: 0.76%
• 1-year return: 30.9%
• 3-year annualized return: 24.4%
• 5-year annualized return: 20.0%
• 10-year annualized return: 15.1%
• Rank among the top 401(k) funds: #56
• Best for: Global stock exposure

American Funds New Perspective fund splits its portfolio between U.S. and foreign stocks. It's a solid option for investors looking to beef up their foreign stock exposure, but who don't want to go all-in on a foreign-stock fund.

Seven managers divide the portfolio's $140 billion in assets and invest their own sleeve as they see fit. But they all must invest in companies that receive a meaningful share of sales and operations outside of their home base. Together they have constructed a roughly 300-stock portfolio of mostly large companies with above-average earnings growth. Tesla, Microsoft and Facebook are the fund's top holdings.

Next to its peers – funds that invest in foreign and U.S. large companies – New Perspective has stayed above average for the majority of each of the past 11 calendar years, making it one of the best American Funds for 401(k) investors. On an average-annual return basis, ANWPX's 15.1% 10-year return outpaces the typical world large-stock fund, which gained 13.6% annualized, as well as the MSCI ACWI index, which climbed 11.6% on average per year.

Learn more about ANWPX at the Capital Group provider site.

• Symbol: AWSHX
• Expense ratio: 0.58%
• 1-year return: 29.7%
• 3-year annualized return: 15.8%
• 5-year annualized return: 15.3%
• 10-year annualized return: 14.0%
• Rank among the top 401(k) funds: #54
• Best for: Older investors who want a low-volatility stock fund

There was a time when investors relished the safe, strict parameters that American Funds Washington Mutual follows for stock-picking. Though the fund launched in 1952, the rules it follows defining eligible prospective stocks stems from a Washington, D.C., court case following the Great Depression that established a list of high-quality stocks appropriate for investors. Though some of the rules have been relaxed over the years, the eligibility criteria are supposed to steer managers toward high-quality companies with solid balance sheets and that pay consistent, growing dividends.

In practice, the criteria result in a portfolio that's low on risk. But in recent years, when many of the market's high-flying stocks didn't pay dividends, AWSHX's guidelines have crimped overall returns.

Investors, particularly those who are young and still have decades to go before retirement are giving up too much in returns for a small relative improvement on risk. A broad U.S. stock-index fund would be a better option.

Over the past 10 years, for instance, Washington Mutual investors have experienced 10% less volatility. But in return, they have lagged a S&P 500 index fund by an average of 2.2 percentage points per year. In other words, a $10,000 investment 10 years ago in Washington Mutual would be worth almost $10,000 less than an investment in an S&P 500 index fund.

That said, older investors nearing retirement or already retired, who want to keep a toehold in the stock market, might find this American Funds product's strict approach to stock-picking appealing because it results in less volatility. That's why we have a Hold rating on AWSHX.

Learn more about AWSHX at the Capital Group provider site.

• Rank among the top 401(k) funds: #39 (AAETX, 2030); #51 (AADTX, 2025); #55 (AAFTX, 2035); #58 (AAGTX, 2040); #70 (AACTX, 2020); #75 (AAHTX, 2045); #83 (AALTX, 2050)
• Best for: Best for savers who want to put their investments on autopilot

We've long been fans of the American Funds Target Date Retirement series. They're a solid choice for investors who want an expert to handle their retirement investments from start to finish – and well into retirement, too.

You pick the target-date fund with the year that's closest to when you plan to retire, then sit back and let experts take care of the rest. The managers of the target-date series will shift the blend of stock and bond funds over time to a more appropriate allocation as you get closer to retirement.

What sets American Funds' target-date series apart from others is its glide path – the prescribed shift in stocks and bonds over time in any given target-date series. Throughout the series, the firm's target-date funds hold considerably more in cash than their typical peer, but each of the portfolios also have a slightly more aggressive stock position.

For instance, the American Funds 2040 Target Date Retirement fund holds just under 6% of its assets in cash and 84% in stocks and 10% in bonds. The typical 2040 target-date fund, by contrast, holds 2% of its assets in cash, 75% in stocks, 13% in bonds and 10% in other diversified assets.

Interestingly, the series gets relatively more aggressive in its retirement years. The 2010 American Funds target-date fund, for instance, currently holds 9% in cash, but has a 40% stake in stocks, 50% in bonds and 1% in other assets. Compare that with the typical 2010 target date fund, which has the same cash allocation, 9%, but just 35% in stock, 53% in bonds and 3% in other assets.

What matters too, of course, is the outcome. And on that front, these funds deliver, returning above-average returns with below-average risk.

This target-date series is among the best American Funds has to offer, and is a solid choice for retirement savers who want a pro to do the work for them.

Learn more about American Funds Target Date Retirement at the Capital Group provider site.

T. Rowe Price's corporate symbol is the bighorn sheep: a sure-footed and agile climber, even in the roughest terrain. It was chosen to reflect investors' ability to rely on the firm's investment expertise to navigate all types of markets.

As far as the best T. Rowe Price funds are concerned, it's an accurate representation.

In this, part of our annual review of popular workplace retirement funds, we put T. Rowe Price's most widely held 401(k) funds to the test. We analyze five of Price's funds, plus the target-date series T. Rowe Price Retirement, and rate them Buy, Sell or Hold. (Seven Retirement target-date funds appear among the most widely held 401(k) funds in the country – with target years between 2020 and 2050 – but we appraise the series as a whole.)

This story is meant to help savers make good choices among the funds available in their 401(k) plan. It is written with that perspective in mind. Look for our reviews of other big fund firms in the 401(k) world, which currently include Vanguard and Fidelity, and will soon include American Funds as well as Buy-rated funds among all the top 401(k) options.

Read on as we look at some of the best T. Rowe Price funds for your 401(k) plan (and weed out some of the provider's lesser options).

Returns and data are as of Nov. 2. In each review, we refer to the symbol, returns and expense ratio of the share class that is available to most investors. The reason for this is that the share classes of specific funds offered in 401(k) plans can vary, depending in part on the size of the plan.

• Symbol: TRBCX
• Expense ratio: 0.68%
• 1-year return: 31.4%
• 3-year annualized return: 25.4%
• 5-year annualized return: 24.8%
• 10-year annualized return: 19.3%
• Rank among the top 401(k) funds: #20
• Best for: Long-term growth, but a new manager has us pushing the pause button

T. Rowe Price Blue Chip Growth has long been one of the best T. Rowe Price funds widely available in 401(k) plans, but a recent change gives us at least momentary pause.

Larry Puglia retired in October as longtime manager of this blockbuster fund after nearly 30 years. Since he launched TRBCX in June 1993 (with Thomas Broadus, who stepped down in 1997), it has delivered a 12.4% annualized return, which handily beats the S&P 500 return of 10.6% over the same period.

Puglia's departure is the main reason we have a Hold on the fund.

New manager Paul Greene started at T. Rowe Price as an analyst in 2006 and was a manager of T. Rowe Price Communications & Technology (PRMTX) from May 2013 to April 2020. During that time, the fund returned 13.8% annualized, beating the typical communications fund as well as the average tech fund and the S&P 500.

That's some evidence that Greene has the chops to run Blue Chip Growth. But the transition between managers can be tricky. Even though Greene will manage to TRBCX's objective – to invest in stocks of large, established companies with above-average growth potential – his buying and selling decisions will vary from Puglia's, for better or for worse. He might want to shift the portfolio he inherited a bit, too.

Also, this is his first stint as sole manager of a diversified U.S. stock fund – one with a whopping $101 billion in assets.

On top of that, Price recently filed to have TRBCX reclassified as non-diversified, from diversified, with the Securities & Exchange Commission. That allows Greene to invest a greater portion of the fund's assets in fewer issuers, and it could kick up the fund's volatility a bit. So, while we're cautiously optimistic that Greene will do well as the new manager at Blue Chip Growth, we have a Hold on the fund for now as we wait and see what he does and how it affects the fund's performance.

Learn more about TRBCX at the T. Rowe Price provider site.

• Symbol: PRGFX
• Expense ratio: 0.64%
• 1-year return: 36.8%
• 3-year annualized return: 26.5%
• 5-year annualized return: 24.4%
• 10-year annualized return: 18.9%
• Rank among the top 401(k) funds: #48
• Best for: Investors looking for extra exposure to large, fast-growing companies

T. Rowe Price Growth Stock is one of three large-company growth funds from T. Rowe Price – along with Blue Chip Growth and Large-Cap Growth I (TRLGX) – that rank among the most widely held 401(k) funds. That's hardly surprising given the firm's rich record with growth investing. Chances are your 401(k) plan only offers one of them, so you won't have to choose between them.

PRGFX is a decent choice for investors looking for a good growth fund. Manager Joe Fath likes to invest in companies that feature one or more of the following characteristics: industry leadership in a lucrative part of the economy, superior growth in earnings and cash flow, an ability to sustain or expand earnings momentum even during tough economic times. The traits typically lead Fath to concentrate on four sectors: information technology, consumer discretionary, communications services and healthcare.

"These segments," he says, which currently make up more than 90% of the fund's assets, "are areas where we can find innovative companies that offer above-average growth prospects."

Since Fath took over in January 2014, T. Rowe Price Growth Stock has returned 17.3% annualized, better than the 14.7% average gain in the S&P 500 over the same period.

In mid-2021, PRGFX shareholders agreed to reclassify the fund as non-diversified, instead of diversified, meaning the fund can invest a greater portion of its assets in fewer issuers. This could lead to more volatility, but the firm has said publicly that it believes reclassification won't "substantially affect the way a fund is currently managed."

Fath hasn't made significant changes to the portfolio, yet. In late 2020, the fund's biggest 10 holdings in the fund represented 45.9% of the fund's assets. At the end of September 2021 – three months after Growth Stock was reclassified – the top 10 holdings represented 46.9% of the fund's assets.

He currently holds stock in 117 companies. Some are familiar, including, Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOGL). Others – such as electric vehicle maker Rivian, one of the fund's best performers in the first half of 2021 – are investments in private companies that have yet to go public. (Note: Rivian is expected to go public in November under the ticker "RIVN.")

"Our access and ability to invest in private placements will continue to help the fund stand out from its industry peers," says Fath.

PRGFX is one of the best T. Rowe Price funds available in 401(k) plans, and a solid growth stock fund for investors looking to spice up their core portfolio.

Learn more about PRGFX at the T. Rowe Price provider site.

• Symbol: TRLGX
• Expense ratio: 0.56%
• 1-year return: 38.1%
• 3-year annualized return: 27.2%
• 5-year annualized return: 27.1%
• 10-year annualized return: 20.3%
• Rank among the top 401(k) funds: #46
• Best for: Aggressive investors looking for above-average returns

Regular mom-and-pop investors can't invest in T. Rowe Price Large-Cap Growth I, which has a $1 million minimum and is designed for institutional clients, such as a 401(k) plan. But it's one of T. Rowe Price's best funds. And it sports a well-below-average 0.56% expense ratio, the lowest of all the T. Rowe Price actively managed U.S. stock funds highlighted in this story.

Manager Taymour Tamaddon took over in early 2017, so we limit our scrutiny to the length of his tenure. But Tamaddon delivers, with a 26.6% annualized return since he stepped in as manager. That beats the average 22.7% annualized return of his peers – funds that invest in large, growing companies – as well as the 18.3% average annual gain in the S&P 500 index.

Tamaddon, like almost every other U.S. growth stock fund manager, holds the usual suspects at the top of his portfolio. but he takes sizeable bets. Alphabet, Microsoft and Amazon.com, at last report, were the top three holdings and represented nearly 27% of the fund's assets. Those three stocks have been big contributors to TRLGX's recent performance. Over the past 12 months, the fund has gained 38.1%.

Along with Blue Chip Growth and Growth Stock, Large-Cap Growth was also reclassified in mid-2021 as a non-diversified fund with the SEC, which allows it to concentrate in a certain sector, industry or geographic area. Tamaddon already takes big stakes in specific stocks. But further concentration might add to the fund's volatility.

Even so, as long as you can stomach the bumps along the way, T. Rowe Price Large-Cap Growth is a solid choice for investors looking to tap into fast-growing U.S. companies.

Learn more about TRLGX at the T. Rowe Price provider site.

• Symbol: RPMGX
• Expense ratio: 0.73%
• 1-year return: 31.5%
• 3-year annualized return: 20.6%
• 5-year annualized return: 19.6%
• 10-year annualized return: 16.2%
• Rank among the top 401(k) funds: #50
• Best for: Investors looking for long-term growth

For close to three decades, manager Brian Berghuis has run T. Rowe Price Mid-Cap Growth (it will be 30 years in June 2022), delivering a 14.3% annualized return over the period. No other diversified U.S. stock fund manager in the country has done better – for as long. Although three other diversified U.S. stock funds sport slightly higher annualized returns over that period, none were earned by the same manager over the entire period.

RPMGX has been closed to new investors since 2010. But if Mid-Cap Growth is offered in your 401(k), that doesn't matter. Participants in a retirement-savings plan that includes Mid-Cap Growth as an investment option can invest at any time.

Now the only question is how much longer Berghuis, who just entered his 60s, will stick around. He has not announced any plans to retire. That's good news. But Mid-Cap Growth has taken on associate managers, which at T. Rowe Price is sometimes a signal (albeit a distant one) that a manager transition is in the works. The firm prefers to make changes slowly, and adding associate managers to a fund a year in advance of a manager change is not uncommon.

Berghuis still is lead portfolio manager and is ultimately responsible for portfolio decisions, but Donald Easley and Ashley Woodruff were recently named associate managers on the fund; John Wakeman has been an associate portfolio manager since 1992.

We're envious of those 401(k) plan participants who can invest in RPMGX. It's all-around one of the best T. Rowe Price funds on offer.

Learn more about RPMGX at the T. Rowe Price provider site.

• Symbol: PRNHX
• Expense ratio: 0.75%
• 1-year return: 38.7%
• 3-year annualized return: 33.0%
• 5-year annualized return: 31.0%
• 10-year annualized return: 22.1%
• Rank among the top 401(k) funds: #66
• Best for: Aggressive minded investors with a long-term view looking for exposure to small and midsize companies

T. Rowe Price New Horizons has entered a new chapter with manager Joshua Spencer, who stepped in after superstar Henry Ellenbogen abruptly left T. Rowe Price in April 2019. So far, it's been thrilling. Since Spencer took over, he's pounded the competition with a 35.2% annualized return, beating 94% of its peers, funds that invest in midsize, growing companies, and far and away ahead of the 20.4% annualized gain in the Russell Midcap Index.

PRNHX is closed to new investors, but if it's offered in your employer-sponsored retirement savings plan, you're free to buy shares as a first-time investor in the fund.

Ellenbogen was a tough act to follow. During his nine-year tenure as manager of New Horizons, the fund posted an 18.7% annualized return, beating every diversified stock index imaginable, and all but one U.S. diversified stock fund: a small-company fund called Virtus KAR Small-Cap Growth (PXSGX).

But Spencer has made his mark on PRNHX. Like Ellenbogen, he looks for small, undiscovered emerging companies that offer the potential for accelerated earnings growth because of new products, a revitalized management team, or a structural shift in the economy. Investments in private companies – including shoemaker Allbirds (BIRD), which only very recently went public; apparel company Rent the Runway; and Tempus Labs, a biotech firm – represent 5% of the fund's assets and offer the promise of enhanced returns.

Although Spencer focuses on companies with $7 billion or less in market value at the time of purchase, like his predecessor, he'll hang on as long as the company is growing. It's one reason New Horizons, which started under Ellenbogen as a small-company growth fund, is now classified a mid-cap growth fund. Most of the fund's top 10 holdings predate Spencer as manager. Veeva Systems (VEEV), a cloud-computing company, for instance, has been in the fund since 2017 and boasts a market value of $45 billion.

This is a solid option for investors who want to invest early in companies with solid growth prospects.

Learn more about PRNHX at the T. Rowe Price provider site.

• Rank among the top 401(k) funds: #27 (TRRCX, 2030); #41 (TRRDX, 2040); #45 (TRRHX, 2025); #49 (TR, 2020); #53 (TRRJX, 2035); #69 (TRRKX, 2045); #72 (TRRMX, 2050)
• Best for: Investors who want a managed, diversified approach to their retirement savings

Target-date funds take the worry out of investing your retirement savings because experts handle everything for you. They decide how much of your assets should hold stocks or bonds and when your portfolio needs rebalancing. They even work to make your money last throughout your retirement.

The key to a top-notch target-date fund is the asset-allocation plan behind it. And for the past decade, T. Rowe Price has had a winning one. The proof is in the long-term performance record of the funds in this target-date series, which is the third biggest in the country after Vanguard and Fidelity. Over the past three, five and 10 years, T. Rowe Price Retirement target-date funds have posted returns that rank among the top decile of their respective peer group.

The "Retirement" series is Price's flagship target-date product. The firm has since launched other target-date products. One, called "Target," is slightly more conservative than its older sibling Retirement. While Retirement holds 55% of its assets in stock at retirement, Target holds 42.5%. And earlier this year, Price introduced the "Retirement Blend" series, which relies on a mix of active and passive funds.

But the firm's Retirement target-date funds dominate the 401(k) world. The funds hold 24 to 26 mostly actively managed mutual funds, depending on the target year. The most popular one, T. Rowe Price Retirement 2030, holds 26 funds, including some of the stellar portfolios we highlighted here, such as New Horizons and Mid-Cap Growth, as well as one index fund, T. Rowe Price Equity Index 500 (PREIX).

The Retirement target-date series are highly diversified and includes exposure to a wide variety of assets, including long-term Treasuries, foreign stocks and bonds, emerging-markets stocks and bonds, floating-rate loans and real assets, such as natural resources, real estate and commodities.

The asset allocation team, headed by Wyatt Lee, frequently makes adjustments to the target-series glidepath or to the fund lineup. In the first half of 2020, for instance, the team initiated a glide path tweak that raised the overall stock allocation and lowered the bond allocation at certain points along the glide path. Like all changes at Price, the shifts will be made slowly and won't be completed until mid-2022. Ultimately, the stock allocation at the beginning of the glide path – with 40 years before retirement – will increase to 98% from 90%. And at the glide path's end – 30 years after retirement – the stock holdings will sit at 30%, up from 20%.

This target-date series includes some of the best T. Rowe Price funds you could want to shepherd your retirement. They're a fine choice for retirement savers who want professional investment management for their 401(k) money.

Learn more about T. Rowe Price Retirement funds at the T. Rowe Price provider site.

Exchange-traded funds are practically synonymous with index investing. But lately, actively managed ETFs have been flooding the market. Since the start of 2021, the "overwhelming" majority of new ETF launches have been actively managed, says Todd Rosenbluth, CFRA's head of ETF and mutual fund research. Many of these active ETFs follow the same strategies – some even share the same names – of well-known, top-rated actively managed mutual funds.

Some of these new ETF replicas could be worthy choices for your portfolio. But first, it's important to understand how they work (they vary a bit from how index-based ETFs operate), as well as how they may differ from their mutual fund counterparts.

Of course, active ETFs aren't totally new. The first one launched in 2008, according to Morningstar. Pimco Total Return Bond ETF, now called Pimco Active Bond (BOND), arrived in early 2012. And Ark Investments opened the first of its seven actively managed ETFs in 2014, including one of our favorites, Ark Innovation (ARKK), a member of our Kiplinger ETF 20 list.

But some of the newest active funds are a different breed. Instead of reporting detailed portfolio holdings daily, certain funds, dubbed semitransparent or nontransparent ETFs, operate under a rule adopted in 2019 that allows them to report portfolio holdings quarterly. That enables active fund managers to implement their strategies in an ETF structure without "tipping their hand" on their portfolio moves, says Ben Johnson, Morningstar's director of global ETF research. It paved the way for traditional fund firms, including Fidelity, T. Rowe Price and Putnam Investments, to launch active ETFs that mimic the strategies of their star mutual funds.

Price launched four active ETFs last summer. Each is "patterned after" a well-known Price mutual fund, such as Dividend Growth and Equity Income (PRDGX), says Scott Livingston, head of Price's ETF strategy and capital markets global team. Fidelity has rolled out nine actively managed stock and bond ETFs since mid-2020. Many are "clone-ish" versions of the firm's best-known active mutual funds, including Fidelity Blue Chip Growth (FBGRX), Magellan (FMAGX) and New Millennium (FMILX), says Greg Friedman, head of ETF management and strategy for Fidelity.

Overall, the influx of active nontransparent ETFs means more choices for investors, which is a good thing. But although these ETFs offer many positives, there are also some caveats to understand before you jump in.

Lower Fees, Limited Holdings

Nontransparent ETFs charge lower expense ratios than their mutual fund originals – between 0.20 and 0.40 percentage point less, on average. But all of the typical advantages of traditional ETFs apply to these new active ETFs, too. All you need is enough cash to cover the price of a single share and a brokerage account to invest in one, and you can execute your trade at any time of the day. And like all ETFs, nontrans­parent ETFs are inherently more tax efficient than their mutual fund archetypes.

"It's a great option for folks looking for tax efficiency," says Price's Livingston.

But compared with mutual funds, ETFs must work under some constraints. They can't hold stakes in private companies – think Uber Technologies (UBER) and Peloton Interactive (PTON) before they went public – as many mutual funds do. And active nontransparent ETFs, in particular, can't hold stocks that are listed on foreign exchanges (but American depositary receipts – certificates representing foreign shares that trade here – and the like are okay).

What's more, ETFs can't close to new investors as their mutual fund counterparts often do when assets grow to an unwieldy size. This matters most with funds that invest in certain asset classes, such as small-company stocks.

"Not every active mutual fund strategy is a good fit for an ETF," says Morningstar's Johnson.

The performance of an active nontransparent ETF may differ from that of its mutual fund counterpart, even though both are run by the same manager and follow the same strategy. For example, over the past 12 months, T. Rowe Price Growth Stock ETF (TGRW) has trailed its mutual fund counterpart by more than four percentage points.

Returns can swing the other way, too. The ETF version of T. Rowe Price Blue Chip Growth beat its mutual fund sibling over the past 12 months by more than one percentage point.

The difference in returns stems in part from the fact that these active nontransparent ETFs – Johnson calls them ANTs – by definition disclose less than typical ETFs. When investors buy or sell shares in a traditional ETF, the market makers who carry out the necessary trades have up-to-date information on what securities to buy and in what quantities.

If an ETF reports holdings only quarterly, however, the market makers must work with a "proxy" or "tracking" basket of securities – an approximation of an ETF's holdings. The end result: The actual holdings of an ETF may vary compared with its proxy basket and with its mutual fund. For instance, on a recent day in early September, Fidelity Blue Chip Growth ETF (FBCG) held roughly 330 stocks; the mutual fund, 448; and the ETF's proxy basket, 285.

Some fund companies have come up with trading technology that aims to limit the variations between the portfolios. And the firms are as upfront as possible about these portfolio variations. They publish daily proxy basket holdings, as well as the percentage of overlap between the basket and the actual ETF portfolio. In early September, for example, Fidelity reported that Blue Chip Growth ETF had a 75% overlap between its tracking basket and the ETF's actual holdings.

But the knock-on effect of these variations is potentially higher costs. A wider and more volatile bid-ask spread – the difference between the highest price a buyer will pay and the lowest price a seller will accept – is likely with ANTs, says Johnson. That means the price you pay when you buy or sell ETF shares may not match the value of the fund's portfolio. And these price differences may be bigger than what you would see with popular index ETFs.

For these reasons, not everyone is a fan of nontransparent ETFs.

"I am not investing in these ETFs," says Greg Zandio, a certified financial planner in Minneapolis. Among other things, "they cut against the whole reason for ETFs: transparency and low fees," he says.

But some advisers are selectively folding active ETFs into their clients' portfolios. They make sense in investment classes for which you seek an active manager, says Joseph Favorito, a CFP in Melville, N.Y., who favors active management for bonds in particular.

Watch These ETFs

It's still early days for nontransparent ETFs. But we're keeping our eyes on a handful that are related to some of our favorite actively managed mutual funds. Although we wouldn’t normally recommend ETFs with short track records, we highlight here some new active funds run by mutual fund managers we trust. Returns and data are through Sept. 10.

American Century Focused Dynamic Growth ETF (FDG). Large companies with sustainable competitive advantages, a history of high profits and good growth prospects make for ideal stocks in this fund. The managers start with a quantitative model to narrow their universe and then do nitty-gritty, fundamental research before they invest in 30 to 50 stocks in fast-growing companies and "market disrupters." Buckle up for the ride because it can get bumpy, especially with Amazon.com (AMZN), Tesla (TSLA) and Alphabet (GOOGL) as the top holdings in the portfolio.

The ETF's mutual fund cousin shares the same name and managers. Since taking over in mid-2016, the managers have outperformed their mutual fund and ETF peers – funds that invest in large, growing companies – in every full calendar year. Over the past 12 months, both the mutual fund and the ETF, which launched in March 2020, beat the S&P 500 Index by more than one percentage point.

Fidelity Blue Chip Growth ETF (FBCG). This ETF's mutual fund counterpart is a member of the Kiplinger 25, the list of our favorite no-load funds. Manager Sonu Kalra has managed the mutual fund, which focuses on fast-growing large companies, since 2009 and has consistently delivered solid, peer-beating returns. Now he steers the ETF strategy, too, with help on execution from Michael Kim. "It's magical from my perspective, because I don't do anything differently for the ETF than I do for the mutual fund," says Kalra.

The ETF, which launched in June 2020, has a 12-month return of 42.0%. That outpaced the S&P 500 Index and 85% of the ETF's peers (mutual funds and ETFs that invest in large, growing companies).

T. Rowe Price Dividend Growth ETF (TDVG). For this fund, yield matters – but not as much as whether a company has a willingness to increase its dividends. Manager Tom Huber believes that a steady record of dividend hikes is an indicator of a company's financial health and growth prospects, and that over time those payouts can significantly contribute to total return. Microsoft (MSFT), Apple (AAPL) and Visa (V) are top holdings.

Though this ETF is just over one year old, Huber's winning track record over 20-plus years at the mutual fund, which is also a member of the Kip 25, is proof that he knows what he's doing. Since he took over in 2000, the mutual fund has returned 8.8% annualized, which beat the 7.3% average annual return of the S&P 500. So far, the newly hatched Dividend Growth ETF has kept pace with its mutual fund parent. Both funds boast roughly the same returns of about 32% over the past 12 months.

Nuveen Small Cap Select ETF (NSCS). This ETF had a record of just over a month at the time we went to press. But comanager Gregory Ryan has run the strategy in a mutual fund with the same name for more than eight years (comanager Jon Loth joined in early 2019). Over that time, the fund returned 11.9% annualized, which beat the 11.4% gain in the Russell 2000 small-company index.

Loth and Ryan search for small companies (roughly $40 million to $12 billion in market capitalization) that are attractively valued relative to industry peers, have strong or improving cash flows, revenues and earnings growth, and have a catalyst to drive the stock's price up over the next one to two years. Avient (AVNT), which provides specialty polymers, and Saia (SAIA), a trucking company, are among the mutual fund's top holdings.

Small Cap Select ETF's fees appear high compared with other funds we highlight here. But the ETF is far cheaper than its parent mutual fund, which charges a 5.75% load and 1.24% in annual expenses.

Summary: The best Fidelity mutual funds offer investors a low-cost way to diversify their portfolios. They also allow for active management with a solid track record or a more hands-off approach with index funds. Look for funds with low expense ratios and at least $60 billion in assets under management, such as the Fidelity 500 Index Fund, the Fidelity Contrafund and the Fidelity U.S. Bond Index Fund.

When most investors consider the best Fidelity mutual funds, they think of low-cost options that offer tactical approaches designed to beat the market.

While lots of fund providers have lowered fees in the past decade or so, Fidelity was the first — and remains one of the few — to offer zero-expense-ratio index mutual funds. The asset manager currently has four mutual funds that have 0% expense ratios available to investors with a Fidelity account.

Why does this matter? Higher expense ratios can erode your investment returns over time. For instance, a $10,000 investment in a mutual fund with a 0.2% expense ratio and an expected return of 7% would grow to roughly $72,000 over 30 years. That same investment in a mutual fund with a 0.8% expense ratio and 7% assumed return would be worth about $61,000 after three decades.

That’s a substantial amount of money to leave off the table due to higher fees.

While our list of the best Fidelity mutual funds to buy now doesn’t include any zero-expense-ratio funds, it does include some familiar active funds with expense ratios below or within the average range of 0.5% to 0.75%. The lineup also includes large and popular index funds that might be more attractive to investors who prefer a more hands-off approach.

The result is a list of low-cost funds that cover multiple strategies, providing great options for any investor looking to build wealth for the long term.

The following Fidelity mutual funds are open to new investors, have no investment minimums and have at least $60 billion in assets under management.

Data is as of June 14. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.

• Assets under management: $791.7 billion
• Dividend yield: 1.1%
• Expenses: 0.015%, or $1.50 annually for every $10,000 invested

As its name suggests, the Fidelity 500 Index Fund (FXAIX) is a focused bet on the S&P 500 Index. That makes the index fund a bit different than the more actively managed funds that make up the largest vehicles in this asset manager's arsenal.

But it’s hard to argue with the simple approach and the tremendous scale of FXAIX. It's made up of the largest 500 U.S. publicly traded companies, with top positions, including a who's who of large-cap tech stocks that have led the market in recent years, including Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA).

With no minimum investment and a rock-bottom expense structure, the fund is tremendously accessible, even for small investors.

It's also rated Gold at Morningstar, with analyst Brendan McCann calling it a “best-in-class option for large-cap U.S. stocks.”

Learn more about FXAIX at the Fidelity provider site.

• Assets under management: $177.4 billion
• Dividend yield: 0.00%
• Expenses: 0.74%

One of the most respected actively managed mutual funds out there is the Fidelity Contrafund (FCNTX). It's a Wall Street institution that's been generating strong returns for investors since its birth in 1967.

This top Fidelity mutual fund is representative of Will Danoff’s — the fund’s star asset manager — approach to stock-picking in pursuit of market-beating gains. It primarily contains U.S. large-cap stocks, with a portfolio of just under 450 positions that includes the usual suspects. For instance, Nvidia is its top holding right now, accounting for 10% of the portfolio.

FCNTX has outperformed the S&P 500 in the past three, five and 10-year time frames, thanks to its low fees and actively managed approach.

Of note, Danoff is set to retire at the end of 2026, and Fidelity brought on Asher Anolic and Jason Weiner in April 2025 to co-manage the fund.

Learn more about FCNTX at the Fidelity provider site.

• Assets under management: $131.7 billion
• Dividend yield: 0.95%
• Expenses: 0.015%

The Fidelity Total Market Index Fund (FSKAX) is among the best Fidelity mutual funds to buy now, thanks to its low-cost structure and a broad approach that provides easy diversification.

More than 3,700 stocks populate the portfolio, giving FSKAX a true “total market” approach to the U.S. Larger companies and the Magnificent 7 stocks carry more weight, as is typical for many index funds.

Still, the wide net cast by this Fidelity mutual fund could help smooth some bumps in the road if one corner of the market gets hit harder than others.

Morningstar says its Gold Medalist rating is underpinned by the fund’s “sound investment process and strong management team.”

If you’re a “set it and forget it” investor, FSKAX is for you.

Learn more about FSKAX at the Fidelity provider site.

• Assets under management: $95.3 billion
• Dividend yield: 0.0%
• Expenses: 0.61%

Another tactical and actively managed Fidelity fund is the Fidelity Blue Chip Growth Fund (FBGRX), which does exactly what it advertises: focuses on blue-chip stocks with strong growth metrics.

The portfolio includes 385 or so total positions, with Nvidia in the top spot, followed by Apple and Google parent Alphabet (GOOGL). When you buy shares of FBGRX, you gain exposure to megacap U.S. stocks that reliably expand earnings and sales year in and year out.

“Fidelity Blue Chip Growth stands tall on the strength of its bold bets and seasoned leadership,” says Robby Greengold, principal of equity strategies at Morningstar, of the Bronze-rated fund. However, Greengold notes that FBGRX has an outsize reliance on AI stocks, which leaves it exposed to the market’s mood.

That said, the fund has turned in a strong performance in the past decade and a $10,000 investment 10 years ago would theoretically be worth nearly $70,000 today. If your priority is strong growth, FBGRX is one of the best Fidelity mutual funds to buy now.

Learn more about FBGRX at the Fidelity provider site.

• Assets under management: $68 billion
• SEC yield: 4.4%*
• Expenses: 0.025%

Looking beyond publicly traded companies, the Fidelity U.S. Bond Index Fund (FXNAX) is among the largest and most popular Fidelity mutual funds to buy now.

Holding approximately 10,370 individual bonds, FXNAX is incredibly diversified. It has about half its assets in rock-solid U.S. Treasury bonds, about 25% in corporate bonds and 25% in bundled mortgage debt, auto loans and other instruments.

The portfolio includes only investment-grade bonds, avoiding “junk” bonds and providing added peace of mind.

The fund has a “sound investment process and strong management team,” says Morningstar, both of which support its Gold Medalist rating.

FXNAX currently yields 4.4%, more than triple the S&P 500 right now.

* Yields on bond funds are SEC yields, which reflect the interest earned after deducting fund expenses for the most recent 30-day period.

Learn more about FXNAX at the Fidelity provider site.

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• Why Invest In Mutual Funds When ETFs Exist?

If you read my article earlier this year about so-called “game-day-trading” apps, you’ll already know that I’m no fan of brokerage firms that encourage people to treat investing like gambling.

However, I do believe that it’s beneficial for young people to get hands-on investment experience during their formative years. This knowledge will give them a head start on understanding the importance of managing their money responsibly.

Until recently, kids under 18 were only able to invest online using a custodial brokerage account opened by a parent or guardian. Theoretically, a child with access to the account could invest in anything an adult could, including foreign stocks, currencies, leveraged ETFs and junk bonds. If the custodial parent wasn’t paying attention, their child could get them both into trouble fast.

Giving teenagers unrestricted and unmonitored access to online trading is a recipe for disaster. That’s why I was intrigued by Fidelity Investments’ decision to launch a special discount brokerage platform for teenagers. Called the Fidelity Youth Account, this no-fee account allows children ages 13 to 17 to invest and bank online.

Now, I’m not legally allowed to endorse any particular trading platform. Even if I were, I would never give my thumbs-up to any app I didn’t try out on my own. It’s been many decades since I was teenager, so I won’t be able to kick Fidelity’s tires anytime soon. Therefore, after reading Fidelity’s description of the Youth Account, the most I can say is that I hope it lives up to its potential to teach teens how to invest, save and spend responsibly.

Some Impulse Controls Have Been Built In

On paper I will say that I am encouraged by the level of controls and parental oversight Fidelity claims will prevent teenagers from acting like amateur hedge fund traders or indulging in Wolf of Wall Street-style speculation.

First of all, teens can’t open an account on their own. Parents will have to open it for them, and they can only do it if they have their own Fidelity brokerage account. The Youth Account can be funded from a parent’s brokerage account or from transfers from the teen’s bank account (or a joint bank account). There are no minimum balance requirements or account maintenance or trading fees.

The account comes with a debit card, which Fidelity says will have daily spending limits. And kids can transfer money in and out using PayPal, Venmo and other apps. The app won’t give parents tools to control what their teenagers spend their money on or what they invest in, but they will receive notifications of these activities. I certainly hope they will scrutinize them very closely, because if Junior uses the account to conduct illegal or fraudulent activities, Mom and Dad will be liable. Fortunately, Mom and Dad can also shut down the account entirely if Junior betrays their trust.

To prevent kids from jumping on Reddit-style bandwagons, Fidelity says it won’t let kids buy and sell options, penny stocks, foreign stocks or individual bonds or cryptocurrencies. They can’t open margin accounts, short sell or invest in annuities, structured products or other complex securities.

But I Still Have Some Serious Reservations

This all sounds well and good. But there are some things about this app I have concerns about. I realize that Fidelity isn’t offering this platform out of the goodness of its heart. The company wants to start building loyalty to its discount brokerage platform as early as possible. That’s why, according to Fidelity, when the teen turns 18, the Youth Account automatically converts to a regular Fidelity brokerage account, and all parental controls come off. Does turning 18 suddenly make you a smarter, more responsible investor? My adult children might say yes, but I’d say that’s up for debate.

I don’t like that Fidelity only lets teens invest in its own mutual funds. This limits their ability to evaluate and invest in funds from other fund families that may have better track records or lower costs.

Another concern? Since these are taxable accounts, teenagers might not be aware of the ordinary income and capital gains taxes their transactions may generate. Given that teens generally don’t make a lot of money, their tax bill isn’t likely to rise all that much, but these profits may require them to file their own tax returns — something they might not have to do otherwise. In some cases, parents may be able to report their teen’s earnings on their own tax returns.

I’m also a bit worried that Fidelity doesn’t limit the amount that can be deposited into Youth Accounts, although they recommend capping it at $30,000 per year. I wish the limits were much lower, because there are no controls to keep kids from losing all of their savings trying to score the next GameStop-style payoff. Some commentators have said that the best way for teens to learn the consequences of making bad investment decisions is to get burned by them. But I don’t think this “school-of-hard-knocks” lesson plan is the best approach.

But I think what bothers me the most about these accounts is that teens can start trading without necessarily receiving the education they need to avoid making impulsive or ill-informed decisions. Fidelity offers a lot of educational content, but at first glance they seem to put the onus on parents to make sure their kids go through it first.

How about a Learner’s Permit to Make Youth Accounts Safer?

I don’t like this pass-the-buck approach. After all, we don’t let teens get behind the wheel of a car until they’ve passed a learner’s permit exam. And we don’t let them take the family SUV out on their own until they’ve passed their driver’s license test. Yet, Fidelity seems to be OK with the idea that a financially undereducated 13-year-old could lose all of their savings making bad trading decisions.

That’s why I’d like to see Fidelity, and other companies that plan to roll out similar youth brokerage accounts, implement a “financial learner’s permit.”

Ideally, any teen who wanted to open such an account would first have to take a series of industry-sanctioned online courses covering the basics of investing and personal finance. They would then be tested at the end of each module. Once they passed all of the tests, they would be able to fund their account and start trading. Of course, they might still lose their shirts, but at least they couldn’t use financial ignorance as an excuse.

I’m not holding my breath that this kind of qualification process will happen anytime soon, so the best that I can say about Fidelity’s app is that it may be a safer alternative to the game-day-trading apps I dislike.

In any case, if your teen expresses an interest in investing online, consider imposing your own investment qualification requirements before opening any kind of brokerage account on their behalf. Give them access to the educational content available through your online brokerage or 401(k) plan account, and test them to make sure they understand it. Or, consider having your child speak with your financial adviser, who can recommend additional sources of educational information and explain the investment rules of the road.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The price of bitcoin was already soaring when Tesla announced in February that it had bought $1.5 billion worth of the digital currency, sending its value climbing higher. The electric-vehicle maker said it would soon accept bitcoin as payment for its products, too. But in truth, Tesla was a tad late to the party.

Several well-known firms had already embraced bitcoin in one way or another. Massachusetts Mutual Life Insurance, a 170-year-old insurer, bought $100 million worth of bitcoin in late 2020 for its general investment accounts. MicroStrategy, a business services company, has been buying millions in bitcoin, which represents the majority of its cash reserves. And Mastercard and PayPal have each said customers will soon be able to use bitcoin to pay for purchases through their respective networks. All told, demand has driven up the price of the cryptocurrency by nearly 450% over the past 12 months. Its market value is just under $1 trillion. (Returns and data are through March 5.)

Does that mean it’s time for regular folks to buy bitcoin? Not necessarily. There are pros and cons to buying it, and its recent popularity doesn’t erase its drawbacks, whether you view it as an investment or as a currency that you can use to buy things.

What is bitcoin? The 11-year-old cryptocurrency was the first of its kind. It gets its name from the technology behind it—every transaction is encrypted by computer code, known as blockchain technology, which eliminates the need for a middleman or a central bank. Ethereum, bitcoin cash (a spin-off of the original bitcoin) and litecoin are other well-known e-coins.

What’s driving the price? There is a finite supply of bitcoin. Only 21 million tokens will ever be made, and nearly 19 million bitcoins are already in circulation, so there are fewer than 3 million left to be created. And the rules around how the tokens are created—they’re awarded to bitcoin “miners” who solve complicated math problems—along with other restrictions mean a dwindling number of tokens will be issued in the coming years. The final bitcoin will be minted more than 100 years from now, in 2140.

Such scarcity is driving demand, says Tom Jessop, head of digital assets at Fidelity Investments. The brokerage and investment firm launched a passively managed bitcoin fund with a minimum $100,000 investment requirement, targeted at institutions. Since then, Fidelity has seen a lot of interest from a diverse group of clients, including hedge funds, registered investment advisers, pension and endowment funds, and corporate clients.

Will other digital assets displace bitcoin? Scarcity and increased demand could help bitcoin stay dominant. Yassine Elmandjra, a cryptocurrency analyst at Ark Investments, believes bitcoin will capture the lion’s share of the market for digital assets over time. “There may be room for two to five additional currencies that capture 25% to 35% of the total market share,” he says.

Is bitcoin a good investment? It has been over the past 12 months. But some in­vestment professionals still view the virtual currency skeptically, including Matt Andrulot, executive director of research at Verdence Capital Advisors, an advisory firm for ultra-high-net-worth investors, in Hunt Valley, Maryland. “It’s volatile and speculative,” he says.

He’s right about the volatility. In just two weeks in January, bitcoin lost 25% of its value. During the pandemic sell-off in 2020, the price of bitcoin fell 49% from its peak to its trough (the S&P 500 index, by contrast, dropped 34%). And few holders are likely to forget its 83% fall between December 2017 and December 2018. Because bitcoin doesn’t generate any cash flow or earnings—and never will—its price is driven purely by demand, so it’s speculative. “Be prepared to lose the entirety of your principal,” says Thomas Stapp, a certified financial planner in Olympia, Wash.

That said, bitcoin could still have a small place in an investor’s portfolio. But given the sky-high volatility, it should take up no more than 1% to 3% of your assets, say many advisers. Limit your investment to an amount you can afford to lose, says Leo Marte, a certified financial planner in Huntersville, N.C. “That kind of mind-set will bring you to the right allocation for you.”

If you do invest, consider it exposure to an “alternative” asset class. Traditional alternative investments, such as gold or a basket of commodities, offer your portfolio diversification from stocks or bonds. Many investors hold gold, for instance, as ballast against market downturns or to hedge against inflation. Bitcoin’s unique characteristics make it more commodity-like than stock- or bond-like. In fact, the U.S. Commodity Futures Trading Commission considers virtual currencies to be commodities, and therefore subject to oversight under its authority.

On paper, bitcoin has superior properties as a store of value compared with gold. It’s scarce because of the finite supply; by contrast, gold miners regularly find new deposits. Bitcoin is portable and easily stored; in that regard, 100 gold bars might prove onerous. Plus, bitcoin is divisible to eight decimal places and can be easily transferred to others. However, it’s also three or four times more volatile than gold. But the more acceptance grows, says Fidelity’s Jessop, “the more bitcoin gets to become a superior store of value.”

Will bitcoin take off as a form of payment? There’s a lot of promise but little in practice so far. “You can’t go to Starbucks and buy a cup of coffee,” says Stan Kiang, director of exchange-traded funds at Aberdeen Standard Investments. “When that happens, I’ll be a believer.” Bitcoin is gaining some momentum on that front, though, as people buy crypto assets and either use them directly or convert them to traditional currencies to spend. The trend is “unmistakable,” says Raj Dhamodharan, head of Mastercard’s digital assets, blockchain products and partnerships, in a recent company blog post.

Spending bitcoin can involve some rigamarole. For a payment to go through the Mastercard network for a Starbucks latte, say, the dollar price would be translated into digital assets, then those digital assets would be exchanged for dollars at one of Mastercard’s crypto-payment platform partners (BitPay, Wirex or LVL) before the purchase is transmitted on the Mastercard network.

There may be tax implications, too. Because the Internal Revenue Service views digital currencies as property, they are subject to capital gains taxes. If you buy a cup of coffee using bitcoin, it’s akin to selling an asset to do so—you may have to report your cost basis and any potential long- or short-term gain or loss on the digital currency. That would make paying with bitcoin “challenging,” says Fidelity’s Jessop.

How can I buy bitcoin or invest in it? To buy the actual tokens, you’ll have to open an account at an exchange; Coinbase is the biggest. Digital assets in Coinbase accounts aren’t covered by any kind of insurance, but U.S. dollars in the accounts are FDIC-insured, up to $250,000. There’s an easier path, but it’s pricey. Grayscale Bitcoin Trust (symbol GBTC, $44, expense ratio 2.0%), an investment fund of sorts, holds actual bitcoin tokens. “Each share is backed by bitcoin,” says Rayhaneh Sharif-Askary, director of investor relations and business development at Grayscale.

The trust is a bit of a cross between a closed-end fund and an exchange-traded fund. It’s easy to buy and sell in a brokerage account. But you should be mindful of the premium you’ll pay: Over the past five years, the fund has traded at an average 38% premium to its net asset value, according to data provider Y Charts. But in volatile times past (namely 2017), the premium has reached 133%.

Over the past 12 months, GBTC gained 419%. That beat the S&P 500, of course, which rose 29%, but the bitcoin trust experienced three times the volatility, too.

Fidelity Magellan (FMAGX, $12.74), one of Wall Street's most storied mutual funds, isn't just a mutual fund anymore.

It's an ETF too.

The financial service giant recently launched Fidelity Magellan ETF (FMAG, $19.46) alongside three other actively managed ETFs, creating a lower-cost version (0.59% in expenses versus 0.77% for FMAGX) of its legendary product.

If you're not familiar with Magellan's history, it was arguably one of biggest mutual fund stories of the late 20th century. Magellan had a mere $18 million in assets under management (AUM) when Peter Lynch took over in 1977. But a wild 29%-plus average annual return helped FMAGX swell to $14 billion in assets by his departure in 1990. While Magellan eventually eclipsed the $100 billion AUM mark, it has since cooled off, though today it still manages a sizable $21 billion.

Joining FMAG are three other actively managed ETFs:

• Fidelity Growth Opportunities ETF (FGRO, $18.83), 0.59% expenses
• Fidelity Real Estate Investment ETF (FPRO, $20.28), 0.59% expenses
• Fidelity Small-Mid Cap Opportunities ETF (FSMO, $21.82), 0.64% expenses

FMAG, as well as FGRO and FPRO, are existing Fidelity mutual fund products thrown into a less-expensive ETF wrapper; FSMO is a wholly new product.

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They're not the first of their kind, and they're unlikely to be the last. Other fund providers, including American Century and T. Rowe Price, have forged a similar path in recent years, taking their established mutual funds and giving them the ETF shine.

Why Fidelity Is Going Active

The vast majority of ETFs are passively managed instruments (index funds). What sets them apart from indexed mutual funds is that they trade throughout the day, and they often have even lower expense ratios. Also, the very way ETFs function – how shares are actually created and redeemed – leads to greater tax efficiency, with exceedingly little of their net asset value (NAV) paid out as capital gains compared to mutual funds.

Mutual fund investors that have migrated to ETF investing over the past few decades are typically looking for one or several of these perks.

One thing they won't get is a perfect look inside the inner workings of Magellan.

Todd Rosenbluth, Head of ETF & Mutual Fund Research at CFRA Research, says "the ETF move will shine a spotlight into what's inside the ETF portfolio, due to the daily disclosure requirements of ETF holdings." By contrast, mutual funds are only required to publish holdings once a quarter.

That said, Fidelity will do this via a "proxy portfolio" that does include actual stock holdings, but also ETFs with holdings similar to what Magellan holds. This "semi-transparent" wrapper allows Fidelity to avoid showing all of its cards while still remaining compliant with SEC disclosure rules.

Despite differences such as these, Wall Street is demonstrating a growing appetite for the ease and lower costs of actively managed ETFs; assets in these funds surpassed $200 billion earlier this year.

Fund providers are increasingly quick to acquiesce.

"It's inevitable that Fidelity, an investment company with deep resources and a reputation for active mutual fund strategies, would dip their toe into the active equity ETF market," Rosenbluth says.

Will ETFs Eat Their Mutual Fund Counterparts?

Actively managed ETFs appear to be a logical progression for Fidelity. And indeed, "ETF-izing" name-brand mutual funds might attract new money from those who prefer investing through ETFs.

However, "there is a cannibalization risk in that the move could potentially attract away from existing mutual fund shareholders with a lower cost ETF," Rosenbluth warns.

Conversely, "investors familiar with the Magellan mutual fund might not be comfortable buying an ETF," he says, "while investors who have never heard of Magellan might not buy that ETF, either."

But there's risk in doing nothing, too. After all, if an investor is already looking to migrate from mutual funds to ETFs, and Fidelity doesn't offer similar lines of products at the ETF level, that investor might move their money into another provider's funds instead.

It's possible that Fidelity and other large mutual fund companies have seen the writing on the wall, and have decided it's better to keep those assets "in family," even if it's in newer, lower-cost versions of their existing products.

Kent Thune did not hold positions in any of these mutual funds or ETFs as of this writing. This article is for information purposes only, thus under no circumstances does this information represent a specific recommendation to buy or sell securities.

When you track as many mutual funds as investment research giant Morningstar does, you’re bound to end up with a few oddball categories. Consider the firm’s handling of funds that invest in stocks from parti­cular countries or regions. Regions crowded with fund providers, such as China, Europe, Japan and India, get their own categories. Portfolios covering smaller areas are labeled “miscellaneous region” funds—a group easily overlooked.

Fidelity Nordic (symbol FNORX) invests in companies from Denmark, Finland, Norway and Sweden—countries that rarely make financial headlines. But the fund’s performance is hard to ignore. Over the past decade, it has returned an annualized 10.5%, compared with 5.3% for the MSCI EAFE index, which tracks developed-country stocks. Nordic’s results also trounced the average return among funds investing in Chinese, Japanese, Indian and European stocks.

Investors shouldn’t be surprised to learn that Scandinavian stocks have outperformed other foreign markets over long periods, says portfolio manager Andrew Sergeant. Among developed-market firms, Nordic names tend to have among the highest-quality balance sheets and the most shareholder-friendly management teams, he says.

To be included in the portfolio, companies must sport high returns on capital (a measure of profitability) and robust free cash flow (cash profits after outlays to improve the business). Sergeant favors firms that have competitive advantages over peers and have shown resilience during economic downturns. Finally, he wants to pay a fair price, often buying into businesses undergoing temporary problems that belie a strong long-term outlook.

The fund recently added Danish hearing aid and headset manufacturer GN Store Nord. The firm, which typically sells to older customers, took a hit during the stay-at-home mandates induced by COVID-19. Sergeant bought shares when they dipped, and he expects them to bounce back as economies normalize.

The fund holds shares in firms of all sizes, with 46% of assets invested in small and midsize companies. Sergeant isn’t afraid to make big bets on his favorite names; the top 10 in the 39-stock portfolio account for 53% of assets.

Chances are, even if you don't have your 401(k) parked at Vanguard, you have a fund or two from the Malvern, Pennsylvania-based fund company in your employer-sponsored retirement savings plan. That's because, according to financial data firm BrightScope, Vanguard funds are home to more 401(k) dollars than any other fund company in the country.

Among the 100 most widely held funds in 401(k) plans, roughly a third are Vanguard funds. So in this, our annual review of the biggest retirement savings plan, we take a closer look at some of Vanguard's most popular funds in 401(k) accounts, and rate them Buy, Hold or Sell.

Several are index funds, which we do not rate. It's not that we don't like them. We do. But decisions to buy an index fund generally hinge on whether you seek exposure to a certain part of the market. And for the most part, index funds fulfill their purpose – they track the indexes they mirror, less expenses.

But actively managed funds are different.

Some are better than others. Managers change, which can affect a fund's returns. Underperforming funds might be lagging for a good reason; say, its investment style is simply out of favor. That's why we analyze only the actively managed funds from Vanguard in this story. We also review the firm's two target-date series, Institutional Target Retirement and Target Retirement, which are among Vanguard's most popular 401(k) funds and are due to merge (more on that below). Both series hold mostly index funds, but active decisions are made on asset allocation.

This story – as well as our reviews of other big fund firms in the 401(k) world, including American Funds, Fidelity and T. Rowe Price, as well as all Buy-worthy funds across all mutual fund families – is meant to help savers make good choices among the funds available in their 401(k) plan.

Let's look at some of the best Vanguard funds for your 401(k) plan … and weed out a few lesser options, too. For simplicity's sake, and to make comparisons more even, where possible we cite data and returns for Vanguard's Investor share class, which is most accessible to retail investors. Returns are through April 30.

Returns and data are as of April 30. In each review, we refer to the symbol, returns and expense ratio of the share class that is available to most investors. The reason for this is that the share classes of specific funds offered in 401(k) plans can vary, depending in part on the size of the plan.

• Symbol: VEIPX
• Expense ratio: 0.28%
• 1-year return: 7.5%
• 3-year annualized return: 11.3%
• 5-year annualized return: 10.9%
• 10-year annualized return: 11.9%
• Rank among the top 401(k) funds: #52
• Best for: Investors looking for a steady dividend fund

We are longtime fans of Vanguard Equity-Income. It has been a member of the Kiplinger 25, our favorite actively managed no-load funds, since early 2017. Over the past five years, the fund has consistently turned in above-average returns with below-average volatility.

But we're watching VEIPX closely now because a key manager is leaving. Wellington Management's Michael Reckmeyer, who manages two-thirds of the fund's assets, is retiring in June 2022.

Matthew Hand, a longtime member of VEIPX's analyst team, has been tapped to take over. Back in 2018, Hand shed some of his analytical duties to work more closely with Reckmeyer and learn the art of portfolio building and risk management. Hand says that much will stay the same at Equity-Income.

"Mike and I both grew up at Wellington," he says. "We are extraordinarily aligned and share the same investment philosophy."

Manager shifts have taken place at the fund's other subadviser, Vanguard's in-house quantitative equity group, too. Those changes are less worrisome, however, because the quantitative stock group relies on a complex algorithm to choose stocks. That computer model shouldn't change with the new guard. Plus, the quant group runs just one-third of the portfolio.

VEIPX, which stands among the best Vanguard funds that are popular in 401(k) plans, might not beat the S&P 500 over time. But it's not too far behind, and the ride is smoother than that of the broad index. Plus, the fund's dividend yield, 2.3%, beats the current 1.5% yield of the S&P 500.

Learn more about VEIPX at the Vanguard provider site.

• Symbol: VEXPX
• Expense ratio: 0.40%
• 1-year return: -14.6%
• 3-year annualized return: 10.4%
• 5-year annualized return: 12.8%
• 10-year annualized return: 12.4%
• Rank among the top 401(k) funds: #78
• Best for: Aggressive growth-minded investors looking for exposure to small-company stocks

Vanguard Explorer holds stock in growing small caps and mid-caps, which have taken it on the chin in recent months. Over the past 12 months, VEXPX has lost 14.6%. But most things are relative in the investing world, and that beats the Russell 2000, which lost 16.9%.

Explorer is one of a handful of small-company stock funds that rank among the top 100 401(k) funds. But while many are index-based, this one is actively managed. In fact, in keeping with the Vanguard way, many stock pickers have a hand in the Explorer fund.

Managers from five different firms divided the fund's assets and work independently, applying their own process to picking stocks:

• Wellington Management, for example, picks stocks with higher growth potential relative to their valuations.
• ClearBridge Investments focuses on industry leaders that generate substantial free cash flow (money left over after necessary expenses to sustain the business) and make wise capital allocation decisions.
• ArrowMark Colorado Holdings prefers high-quality companies with strong competitive advantages in industries with high barriers to entry.
• Stephens Investment Management and Vanguard's quantitative equity group round out the investing subadvisory team.

Multiple changes in subadvisory managers over the years – and even recently – make it difficult to confidently assess how the fund will fare over a full market cycle. Although seven of the five managers have been in place for five years, putting aside a tumultuous 2020, they haven't been tested in a prolonged bear market yet.

Regardless, the hodgepodge management team results in returns that are just above average. In each of the five full calendar years since the start of 2017, Vanguard Explorer has outpaced the Russell 2000. In other words, you have been better off in VEXPX than in a small-company index fund over that time.

The portfolio is enormous, with close to 750 stocks, and the fund has $20.2 billion in total assets, which makes Vanguard Explorer the biggest actively managed small-company fund in the country.

Just bear in mind: Because small-cap stocks tend to be more volatile than large caps, VEXPX should be a held as a complement to a core holding in a large-company stock fund or a total stock market fund.

Learn more about VEXPX at the Vanguard provider site.

• Symbol: VIPSX
• Expense ratio: 0.20%
• 1-year return: 0.5%
• 3-year annualized return: 5.2%
• 5-year annualized return: 3.7%
• 10-year annualized return: 2.1%
• Rank among the top 401(k) funds: #76
• Best for: Investors looking to hedge inflation

With inflation running higher than it has in nearly a decade, Treasury Inflation-Protected Securities (TIPS) are more in the news. Annual inflation for the 12-month period ending in March, the most recent data available, was 8.5%. That's significantly higher than the roughly 2% rate of annual inflation over each the past five calendar years.

Investors who want to stay ahead of rising consumer prices typically turn to TIPS because on top of a guaranteed rate of interest, the principal of the bond moves in step with the rate of inflation.

Yields on TIPS have been negative for months, though they're inching closer to positive territory. The current yield on Vanguard Inflation-Protected Securities, for instance, is negative 0.99% (in October 2021, it was negative 1.7%). That doesn't mean, however, that you will earn a negative return in this fund. In 2021, for instance, VIPSX returned 5.6%.

That said, 2022 has been challenging for this Vanguard fund: Since the start of the year, VIPSX has lost 6.5%, lagging its inflation-protected bond fund peers by just over 1 percentage point. About 14% of the fund's assets hold debt with 20- to 30-year maturities. That's a bigger stake than its peer inflation-protected bond funds hold, and it proved a drag as interest rates rose (bond prices and interest rates move in opposite directions) because long-term bonds are more sensitive to interest rate shifts than short-term bonds.

We've rated this popular Vanguard 401(k) fund a Hold, however, because longtime fund manager Gemma Wright-Casparius retired in late 2021. John Madziyire became a manager of VIPSX in November 2021 (the two overlapped for a few weeks). This is his first post as sole manager at Vanguard.

Learn more about VIPSX at the Vanguard provider site.

• Symbol: VWIGX
• Expense ratio: 0.43%
• 1-year return: -28.7%
• 3-year annualized return: 8.7%
• 5-year annualized return: 10.4%
• 10-year annualized return: 9.1%
• Rank among the top 401(k) funds: #36
• Best for: Foreign stock exposure

We have long lauded Vanguard International Growth as a superstar for delivering above-average returns with below-average risk. But we're feeling a little cautious these days because a key manager left in April 2022. Another worry is the current war between Russia and Ukraine and how that might affect the European economy and the stock market.

Investment firm Baillie Gifford is one of two subadvisers that run VWIGX, but it manages the biggest chunk (70%) of the assets. And James Anderson, a manager since 2003, is leaving. Comanager Thomas Coutts remains, however, and he has been in place since late 2016. Lawrence Burns was named comanager in 2020.

Managers from Schroders run the remaining 30%. That won't change, and Simon Webber has been with the fund since late 2009, but he does have a new comanager in James Gautrey, who joined in late 2020.

The two firms, both U.K.-based, have slightly different approaches to picking growth stocks; Vanguard chose them to complement each other. Baillie Gifford is willing to pay up for stocks with explosive growth. Schroders' ideal stock is underappreciated but growing fast.

VWIGX's portfolio holds roughly 120 stocks, mostly in large companies domiciled in developed countries. The crisis in Ukraine has hobbled European stocks, which comprise more than 40% of the portfolio. As a result, top holdings MercadoLibre (MELI), Dutch payment platform Adyen (ADYEY) and French-based luxury goods group Kering (PPRUY) have suffered double-digit declines, which has hurt the fund's performance.

Another trouble spot has been China, almost halfway around the world from Ukraine. China stocks make up 13% of the assets and some have been a real drag. Chinese internet powerhouses Tencent Holdings (TCEHY) and Alibaba Group (BABA), for example, are among the portfolio's top 10 holdings and make up more than 6% of assets. Those stocks have underperformed recently because of a regulatory crackdown on tech firms and other shake ups in China.

VWIGX has long been one of our favorite international stock funds. But we'll be watching it carefully over the next year or two, as the fund navigates a choppy international market environment.

Learn more about VWIGX at the Vanguard provider site.

• Symbol: VPMCX
• Expense ratio: 0.38%
• 1-year return: -5.1%
• 3-year annualized return: 11.9%
• 5-year annualized return: 13.2%
• 10-year annualized return: 15.1%
• Rank among the top 401(k) funds: #7
• Best for: A core holding for aggressive investors with long time horizons

Vanguard Primecap was closed to all investors long ago, but if it's offered in your 401(k) plan, you can still put away up to $25,000 a year. Consider yourself lucky. Primecap is one of the best Vanguard funds offered in 401(k) plans, and it's run by five of the best stock-pickers in the country.

The managers – Theo Kolokotrones, Joel Fried, Alfred Mordecai, M. Mohsin Ansari and James Marchetti – work independently managing their own slice of the fund's assets. But they each aim to invest in growing companies that trade at bargain prices. In particular, they look for a catalyst – a new product, new executives at the helm or a restructuring – that they think will push a stock price higher over the next three to five years.

Once they buy a stock, they tend to hang on. The fund's 5% turnover ratio is a fraction of the typical 69% turnover of its peers, funds that invest in large, growing companies.

"Because the Primecap team is buying stocks facing near-term uncertainty, it often takes time for their ideas to work out," says Dan Wiener, editor of The Independent Adviser for Vanguard Investors. "But in contrast to many other growth managers, the Primecap team is willing to wait, and on average holds onto a stock for a decade."

VPMCX's record isn't blemish-free, of course. Though its 10-year annualized record keeps pace with the S&P 500, Vanguard Primecap has lagged the index in five of the past 10 full calendar years, most recently in 2020. A sizable helping of airline stocks – including Southwest Airlines (LUV), United Airlines (UAL) and American Airlines (AAL) – hurt the fund when the economy shut down for COVID-19.

But over the long haul, Primecap has been one of the best Vanguard funds you could hold. Shareholders are certainly richer. A $10,000 investment 20 years ago in VPMCX would be worth more than $81,000 today; a similar investment in Vanguard 500 Index fund would be worth $58,000. And that assumes a lump-sum investment at the start. It doesn't include any regular monthly 401(k) contributions you might make.

This is an aggressive fund, best for investors with long time horizons and a stomach for some volatility.

Learn more about VPMCX at the Vanguard provider site.

• Symbol: VWUSX
• Expense ratio: 0.38%
• 1-year return: -23.8%
• 3-year annualized return: 11.8%
• 5-year annualized return: 15.0%
• 10-year annualized return: 14.1%
• Rank among the top 401(k) funds: #91
• Best for: Steely investors with a long time horizon who want exposure to fast-growing, large companies and can withstand a lot of volatility

Vanguard U.S. Growth put up some good returns in certain years – lately, a 59% return in 2020 – but the fund has faltered, along with the broad market, recently. Over the past 12 months, the fund has logged a 21.7 loss, more than the 1.0% gain in the S&P 500.

Growth stocks are out of favor now, but many of them are vital players in long-term growth trends, such as the rollout of 5G, cloud computing, machine learning and the general digitalization of the entire world. Shares in these companies will rise again, when uncertainty about inflation, interest rates and Ukraine slip away.

A bigger worry is Vanguard's changes among the fund's management team. Eight partial manager changes have occurred at the fund since 2010, according to Morningstar. The latest one took place in early 2021. Vanguard jettisoned investment firm Jackson Square as a manager after 11 years. Four subadvisers remain: Wellington Management, Jennison Associates and Baillie Gifford – each runs roughly 28% of assets – and Vanguard's in-house quantitative equity group, which runs the rest. Recently, the quant group has undergone its own reshuffling; longtime members of the team James Stetler and Binbin Guo both retired.

All of that moving around of parts is troubling, and it makes assessing the long-term merits of a fund tricky. But based on more recent performance, things are going swimmingly. VWUSX's five-year annualized return beats the S&P 500, most of its peer group and even Vanguard Primecap, the firm's venerated growth-company fund. It has been a bumpy ride, though. Over the past five years, this Vanguard fund has experienced above-average volatility compared with all large-company growth funds.

But … if U.S. Growth is the only actively managed large-company growth fund offered in your 401(k), and you have the stomach for a lot of volatility, it's a solid option.

Learn more about VWUSX at the Vanguard provider site.

• Symbol: VWINX
• Expense ratio: 0.23%
• 1-year return: -2.8%
• 3-year annualized return: 5.4%
• 5-year annualized return: 5.7%
• 10-year annualized return: 6.3%
• Rank among the top 401(k) funds: #96
• Best for: Conservative investors

Vanguard Wellesley Income celebrated its 50th anniversary last July. But it's not the oldest stock-and-bond fund in Vanguard's stable. That honor goes to Vanguard Wellington, which we'll get to momentarily.

But unlike Wellington, Wellesley Income tilts more toward bonds than stocks. Two-thirds of its assets are bonds, while the rest is stocks. (Wellington holds more stocks than bonds).

The hefty bond holding makes for a steady fund. Over the past half century, according to Dan Wiener, editor of The Independent Adviser for Vanguard Investors, Wellesley Income's "standout feature is its steadiness."

Steadiness and muted returns often go hand in hand, however. Over the past 15 years, VWINX's 6.3% annualized return doesn't keep pace with the broad market, but it beats 96% of its peers: funds that allocate 30% to 50% of assets to stocks.

Michael Reckmeyer, longtime manager of the stock side of the portfolio, is retiring in June. Matthew Hand is replacing him (Hand is also Reckmeyer's replacement at Vanguard Equity-Income, which we profiled above). We're confident about Wellington Management, the firm behind the fund, and its ability to find new talent and groom them.

Loren Moran picks the bonds. She's a veteran at Wellington Management and has been a comanager on the bond portion of this fund since 2017.

Wellesley Income is one of the best Vanguard funds that are commonly available to 401(k) investors, but given the heavy load of bonds in its portfolio, it's best suited to conservative investors.

Learn more about VWINX at the Vanguard provider site.

• Symbol: VWELX
• Expense ratio: 0.24%
• 1-year return: -3.2%
• 3-year annualized return: 8.3%
• 5-year annualized return: 8.5%
• 10-year annualized return: 9.1%
• Rank among the top 401(k) funds: #10
• Best for: Moderately conservative investors who seek an all-in-one portfolio that holds stocks and bonds

Vanguard Wellington has a long history and a standout long-term record. Founded in 1929, it is the nation's oldest balanced fund. Roughly two-thirds of the fund is stocks; rest of the portfolio is devoted to bonds.

VWELX has undergone a bit of a changing of the guard at the top, along with a couple of other funds on this list. Daniel Pozen, a comanager since 2019, took over as sole manager of the stock side of the fund in July 2020; Loren Moran, a comanager on the bond side since 2017, is now the fund's sole bond picker after a comanager retired in June 2021.

On the stock side, Pozen favors high-quality large companies with a competitive edge over peers. Alphabet (GOOGL), Microsoft (MSFT) and Apple (AAPL) were top holdings at last report. He has trimmed the number of stocks in the portfolio from the high 80s to roughly 70 since taking over.

"There are only so many great ideas in the market at any time that we should lean into the best ideas and make sure they can impact shareholders' investment outcomes," Pozen says.

Stocks aren't required to pay a dividend to be considered for the portfolio, but roughly 85% of the stocks in the fund do.

On the bond side, Moran tilts heavily toward high-quality corporate debt, but spices up returns with a smattering of investment-grade asset-backed securities and taxable municipal bonds. She holds just over one-quarter of the fixed-income portfolio in Treasuries and agency bonds to maintain liquidity – easy access to cash – in VWELX. That's less than the typical 37% of assets that peer balanced funds hold on average.

Vanguard Wellington is a moderate-risk investment choice because it holds both stocks and bonds. But it still packs a punch. Compared with other balanced funds, VWELX boasts above-average returns and below-average volatility. Over the past five years – which includes the period that Moran has been with the fund – Vanguard Wellington beats 82% of its peers with an 8.5% annualized return. It yields 2.1%.

Learn more about VWELX at the Vanguard provider site.

• Symbol: VWNFX
• Expense ratio: 0.34%
• 1-year return: -0.8%
• 3-year annualized return: 13.4%
• 5-year annualized return: 11.6%
• 10-year annualized return: 11.8%
• Rank among the top 401(k) funds: #35
• Best for: Investors seeking out value-priced stocks

We're upgrading the recommendation on Vanguard Windsor II this year a tad, to a Hold from a Sell.

In last year's review of Vanguard's most popular 401(k) funds, we said that investors who had chosen an S&P 500 index fund over Vanguard Windsor II would have done better over the past decade. That's still true.

But context matters. VWNFX focuses on value-priced stocks, and those stocks have lagged growthier shares by a wide margin. Plus, relative to its peers – funds that invest in value-priced large companies – Vanguard Windsor II is starting to shine brightly. Over the past three years, the fund's 13.4 % annualized return ranks among the top 9% of all large value funds.

A change in management might be behind the fund's recent fortunes. In late 2019, Vanguard dismissed two subadvisers and added a new one: Aristotle Capital Management. Aristotle joins three other firms: Lazard Asset Management, Sanders Capital and Hotchkis & Wiley Capital Management.

Each firm has a value bent but slightly different approaches. Lazard focuses on highly profitable companies trading at low relative valuation. Hotchkis & Wiley favors measures such as tangible assets, sustainable cash flow and the potential for business performance to improve. Sanders looks for companies that trade at a discount to its assessment of expected total return. And Aristotle likes to invest in high-quality businesses all over the world that trade at attractive prices and that have a catalyst to kick share prices up over a three- to five-year period. The firms run slivers of the portfolio independently. As a whole, the fund holds roughly 180 stocks.

Since adding Aristotle, the fund has taken a heavier tilt toward technology from the high-single digit exposure of previous years, says Morningstar Analyst Alec Lucas. At last report, tech stocks made up 20% of the fund. Alphabet, Amazon.com (AMZN) and Microsoft sit near the top of the portfolio.

The good news: That was a boon in 2020 and 2021. The bad news: VWNFX is now a tad growthier than some of its large-company value fund peers. And lately as growth stocks have floundered, Windsor II's performance relative to peers has suffered. Its year-to-date return for the first four months of 2022 ranks among the bottom 96% of large-company value funds. But Windsor II still retains a distinct value profile: The portfolio's price-to-earnings (P/E) ratio of 16 is higher than the 14 P/E of other large-value funds, but it's a far cry from the 26 P/E ratio of the typical growth fund.

We're more optimistic about the future of Windsor II, but we're still watching it closely, which explains the Hold recommendation.

Learn more about VWNFX at the Vanguard provider site.

• Rank among the top 401(k) funds: #11 (VTHRX, 2030); #12 (VTTVX, 2025); #15 (VTTHX, 2035); #19 (VFORX, 2040); #23 (VTWNX, 2020), #25 (VTIVX, 2045), #29 (VFIFX, 2050); #65 (VFFVX, 2055); #82 (VTXVX, 2015); #88 (VTINX, Income)
• Best for: Savers who want to make one investment decision and leave the rest to the experts

Target-date funds hold stocks and bonds and are designed to help people invest appropriately for retirement. Experts make the investing decisions, rebalance the portfolio when needed and shift holdings to a more conservative mix as you age. When the fund hits its target year, the work doesn't stop.

Vanguard Target Retirement funds continue to shift their blend of stocks and bonds for seven years after the target year. At that point, the money in the fund automatically rolls into Vanguard Target Retirement Income, which holds a static allocation of roughly 30% stock and 70% bond.

A small change is ahead for Vanguard's target-date funds. The firm actually has two target-date series: the Institutional Target Retirement funds and the Target Retirement funds. They are run with exactly the same strategy, same glide path (the blend between stocks and bonds that shifts over time as the target date nears). But Institutional Target Retirement was created specifically for defined-contribution plans; Target Retirement is available to retail investors as well as in some defined contribution plans. Come February 2022, however, the Institutional series will be absorbed into the Target Retirement series and expense ratios across all target-year funds will fall to 0.08%.

That's a bonus for retirement savers, some more than others. Vanguard Target Retirement 2045, 2050 and 2055 currently charge 0.15% in annual expenses, so this fee cut represents a nearly 50% drop. Expenses aren't uniform across the target-date series currently, so shareholders in the nearer dated funds stand to save a little less. The Investor share class of Vanguard Target Retirement 2030, for instance, charges 0.14% per year.

In any case, Vanguard fees are already about 75% cheaper than most of its peers – one feature we've always liked about the series.

Another thing this series has going for it is simplicity. Vanguard Target Retirement funds hold just five to six index funds in their portfolios, depending on the target year. Four of the funds are total market funds – Vanguard Total Stock Market Index (VTSAX), Vanguard Total Bond Market Index (VBTLX), Vanguard Total International Stock Index (VTIAX) and Vanguard Total International Bond Index (VTABX). The series also includes a short-term inflation-protected securities index fund in the nearer-dated years.

Investors should feel confident choosing a Vanguard Target Retirement fund for their retirement savings. These products are straightforward, low-cost and do all of the work for you.

Learn more about Vanguard's Target Retirement Funds at the provider site.

Every year, following the publication of our brokerage rankings, we receive an in-boxful of e-mails asking the same question: Where’s Robinhood? This year, as in previous iterations of the Kiplinger ranking, we left Robinhood off the list because the mobile-first brokerage doesn’t offer trading of bonds or mutual funds—key investment vehicles for many of our readers.

That doesn’t mean that we haven’t understood the appeal. Robinhood offered free trades on stocks and exchange-traded funds when other brokerages were charging $10 a pop. And you can’t argue with the magnetism of their offering. Even as every other brokerage has shifted to commission-free trading, Robinhood’s attractive app and easy-to-use platform has continued to attract fans. Robinhood said it had 13 million accounts in May, putting it behind only Fidelity and Schwab among firms that participated in our survey.

But Robinhood’s stylish and intuitive platform can make trading feel like a game for customers, and that has led to controversy for the firm. The New York Times recently reported that in the first three months of 2020, Robinhood users traded nine times as many shares as E*Trade customers and 40 times as many as Schwab customers, with an even greater disparity of high-risk options trades. That kind of volume has created problems for the brokerage and its customers. Amid March’s most volatile trading days, Robinhood suffered a number of high-profile outages—up to 17 hours, in one case—drawing the ire of customers.

More troubling was the news in June of the death of a 20-year-old user of the site, who reportedly committed suicide after accruing what he thought was a negative $730,000 account balance trading options on the platform. He acknowledged his inexperience in this kind of trading in a note. Following the tragedy, a group of six members of Congress wrote a letter to Robinhood’s cofounders, questioning the firm’s functionalities and approval processes for options trading, among other things. As of this writing, the legislators say they haven’t received an answer from Robinhood. Robinhood execs say they are rolling out changes to their options-trading process and will work with legislators to address their questions and concerns.

If you're an investor looking for a deal, it's hard to go wrong with an online brokerage these days. Virtually all of firms in our brokerage rankings offer free trades on stocks and exchange-traded funds (ETFs), along with ample research and tools to help investors make educated financial decisions.

With so many reasonably priced offerings, however, investors might gravitate toward firms that offer a few additional features and freebies to sweeten the pot.

Here, we look at some of the most-overlooked broker promotions and perks.

For investors who can't afford sky-high share prices, Charles Schwab, Fidelity and Interactive Brokers have joined smaller, app-based brokers such as Robinhood and Stash in offering partial shares of stock to investors.

Schwab's feature allows investors to buy "slices" of stocks in the S&P 500 for as little $5 apiece.

Fidelity and Interactive Brokers let customers trade partial shares of virtually any stock for as little as $1.

Dividend-paying firms typically disburse cash every three months. If you invest for income, you might have a diverse portfolio of stocks – but if many of them pay out on the same schedule, you might find yourself going through long spells with little cash flowing in.

Four brokers – E*Trade, Interactive Brokers, Merrill Edge and TD Ameritrade – have income estimator tools that can help you keep on top of future payments. Each tool uses recent payout data to project the value and timing of your portfolio's dividend payments over the next 12 months.

TD's tool shows dividends from stocks, mutual funds and ETFs only. E*Trade, Interactive Brokers and Merrill Edge factor in income from bonds as well.

Fidelity brokerage customers have access to four mutual funds with no minimum investment and 0% expense ratios:

• Fidelity Zero Total Market Index (FZROX), which tracks the U.S. stock market
• Fidelity Zero Large Cap Index (FNILX), which tracks large-company U.S. stocks
• Fidelity Zero Extended Market Index (FZIPX), which tracks small- and midsize company stocks
• Fidelity Zero International Index (FZILX), which tracks foreign stocks

To avoid paying licensing fees to index makers such as Standard & Poor's, Fidelity's funds track indexes assembled in-house. That means the funds might outrun or lag ETFs that track traditional indexes. Still, it's easy to see the benefits of free funds with no investment minimum, especially when the savings are compounded over a lifetime of investing.

Including the four funds above, Fidelity offers 28 funds that have no investment minimum.

Nearly every brokerage tries to entice investors to open new accounts or add substantial sums to existing accounts by offering free trades or cash bonuses. Broker promotions come and go among the firms; here are some recent offers:

• Firstrade will reimburse up to $200 in transfer fees when you transfer money from another firm's account. You'll also get a free share of stock (chosen by an algorithm) if you refer a friend who opens an account – your friend gets a share as well.
• Interactive Brokers will give you a bonus of up to $200 if you refer a friend that opens an account and maintains a balance of at least $10,000 for one year.
• Schwab is running a referral promotion, too. However, the reward – between $100 and $500 – goes to the friend you refer, not to you.
• Merrill Edge will give you a bonus of up to $600 when you open a new self-directed investing account.
• TD Ameritrade will give you between $350 and $2,500 when you open a new account with a balance of at least $250,000.
• Depending on how much you deposit, new account holders at E*Trade can earn from $25 up to $2,500.
• Customers who sign up at Ally can earn from $50 to $3,500.
• New accountholders at TradeStation can get a cash bonus between $50 and $5,000.

Opening a credit account linked to your brokerage can help you earn cash back to beef up your investments. Here's a look at some current broker promotions tied to credit card rewards:

The Fidelity Rewards Visa Signature card comes with no annual fee, and all purchases earn 2% cash back, which can be divided and deposited into up to five Fidelity accounts whether they're your accounts or not.

All purchases on the TD Ameritrade Client Rewards Visa come with 1.5% cash back. Deposit your rewards into your TD Ameritrade brokerage account and you'll receive a 10% bonus on the cash-back.

The Schwab Investor Card from American Express offers a $100 credit if you spend $1,000 in the first three months. After that, you'll get 1.5% cash back automatically deposited into your Schwab account.

Merrill Edge customers who sign up for Bank of America's Preferred Rewards program receive a 25%, 50% or 75% boost on the cash-back reward from eligible Bank of America credit cards, depending on the combined assets in your accounts (the 25% level requires $20,000). Say you hold a Bank of America credit card, which offers 3% on a particular purchase. A $100 purchase would earn $3.75, $4.50 or $5.25, rather than $3. Similarly, a purchase that earns the buyer 100 points would actually earn 125, 150 or 175 points.

Whether you set up a cash-management account or just take out a debit card linked to the cash balances in your brokerage account, several brokers will reimburse your fees when you withdraw cash at any ATM.

Fidelity and TD Ameritrade will reimburse ATM fees nationwide. Schwab does that too, plus waives the 3% foreign transaction fee most debit issuers charge to make purchases abroad.

E*Trade and Ally offer more traditional banking services, such as checking and savings accounts. Ally accountholders can use more than 43,000 Allpoint ATMs for free, and the bank will reimburse up to $10 in ATM fees each statement cycle. E*Trade's Max Rate Checking Account comes with unlimited ATM reimbursements on charges that other financial institutions levy (though you may be subject to charges from the owner/operator of the ATM).

Merrill Edge investors who have $50,000 in assets (combined at Merrill Edge, Merrill Lynch and Bank of America) and who have joined the Preferred Rewards program can get 12 ATM-fee reimbursements per year at non-Bank of America ATMs in the U.S. (Bank of America ATMs are free).

Investors increasingly want to do brokerage business on the go. In response, all of the brokers in our survey offer mobile apps that you can use to do just about anything you could do on your desktop, such as trading stocks, accessing research, paying bills and transferring funds.

But tech-savvy investors will be pleased to know that some brokers' platforms extend beyond websites and mobile apps.

Investors can interact with their Fidelity, Interactive Brokers, Schwab and TD Ameritrade accounts by chatting with Alexa, Amazon's digital assistant. Schwab users, for instance, can ask Alexa for market information, stock quotes and updates on personalized watch lists.

TD Ameritrade customers can ask questions or even execute a trade through direct messages on Twitter, on Facebook Messenger or through the iPhone Messages app as well. If TD's computer-generated responses don't satisfy you, you'll be automatically connected with a live representative. TD Ameritrade customers can access broker information in their car through Apple Car Play, Android Auto and Echo Auto.

Interactive Brokers and TradeStation customers might be able to earn a little extra cash by authorizing that firm to lend stocks you hold to traders interested in paying you interest to borrow your shares and sell them short.

Each brokerage will pay cash they earn from lending your shares directly into your account. You'll earn more money on long positions in thinly traded stocks than you will holding widely available names. Each firm will give you half of whatever income they earn on your stocks.

You'll need $25,000 or one year of trading experience to get into the program at TradeStation. At Interactive Brokers, you'll need approval for a margin account or $50,000 to enroll.

When you’re trying to get a handle on your money, from investments and savings to figuring out retirement and preparing for your future, you might need help from an expert in the financial planning world. But finding the right person can be more complicated than rebalancing your portfolio.

Perhaps you’re thinking of a wealth manager. But there are wealth management firms, with estate planning and tax specialists, and then there’s the junior employee at your bank listed as a “wealth manager.” Maybe you need a financial planner—but is the planner a financial adviser, a financial life planner, or a financial coach? If your money and emotional issues are creating problems, like addictive spending, you could consider a financial therapist, who could be a financial professional who has some training in counseling, or a mental health professional with some training in personal finance.

If you finally find the right professional, you’ll need to understand how you’ll pay for the advice. Some planners offer subscriptions, similar to your annual gym membership dues, with prices based on the complexity of your situation or your income. Maybe your planner is fee-only for some services and also charges an annual percentage fee based on your assets under management. Or the planner charges you an annual fee, or a retainer, for financial planning and advice only. Or a commission on products sold. Or a blend of all of the above.

“There’s a lot of confusion and for consumers it’s very difficult,” says Ruth Lytton, a financial planning professor at Virginia Tech. “There’s a big range of providers, services and products, and you need to know what you are getting into.”

It’s never been simple or straightforward to pick a planner or adviser, but the process has become more complex because of the transformation of the financial services industry. Brokerages and investment firms such as Vanguard and Fidelity now compete to offer commission-free trading to small investors. Individual investors can outperform actively managed funds by investing in passive investments (indexed exchange-traded funds and mutual funds). Roboadvisers can give you digital investing advice based on algorithms.

Financial advisers and planners are responding to all the changes by expanding their services to offer clients more than investment advice and retirement finance scenarios. Your adviser may want to understand your personal values and views on money, and make a plan based on how your finances can align with those goals. A planner may offer hands-on help, along with advice, helping you figure out long-term care for a loved one by joining you on touring potential facilities or referring you to an elder care professional. Some might sit down with you and help you fill out federal financial aid forms for your college student.

“As long as it’s even tangentially related to financial planning, many firms will help their clients navigate the issue,” says Geoffrey Brown, chief executive officer of the National Association of Personal Finance Advisors, or NAPFA, the fee-only financial professionals group. One adviser recently helped a client decide whether to lease or buy a new car, for example.

The financial profession as a whole is working to serve a broader swath of the population, including consumers with more modest incomes, younger workers and other non-traditional clients, Lytton says. “Planners are reaching out not just to those with wealth to protect, but those trying to build wealth,” she says. The changes have been particularly helpful to pre-retirees and retirees, who can tap advisers for more than investment advice. “The retirement piece of planning is a longstanding issue that has led clients to seek advisers, due to the complexity of the financial aspects of it,” she says. “But now, social issues, identity and self-esteem issues, and the need to be intellectually and personally engaged later in life, are questions that are also coming up.”

Advisers who understand this and broaden their services to include guidance on issues like career transitions and end-of-life-care are seeing success, says Christine Benz, director of personal finance for Morningstar. “The smart advisers understand how inextricably linked money is to all these other decisions we might have in our lives,” she says.

Advisers also are increasingly using video chats and teleconferencing, making financial advice more available to clients in rural areas and small towns where a planning firm doesn’t have a physical presence. Other advisers have expanded their reach on social media, offering expertise in real time on issues such as the effects of the SECURE Act.

Understand Your Choices

But the changing landscape also can be challenging for consumers. You have to understand what type of professional you need, what services to look for, what qualifications to ask about and how to understand fees. It gets even more complicated, because categories of advisers are currently “squishy,” as Benz puts it. Someone who focuses mostly on your investment portfolio is a wealth manager, but wealth managers are a type of financial adviser. Advisers work at brokerage firms, such as Morgan Stanley and Merrill Lynch, or they are sole proprietors, like the retired neighbor advertising on the local listserv. It’s up to you to determine qualifications and experience, and financial planning industry credentials aren’t always clear, she says. “It’s so confusing for consumers because the designations floating around don’t help matters,” Benz says. “A lot of consumers see people with a lot of letters after their name but that’s not necessarily good. They’re not all on equal footing.”

But with some effort, you can find the right financial professional. Your search is about finding what kind of adviser you’re most comfortable with, so consult with several professionals and sample different approaches to decide on the right fit. You’ll need to evaluate specifics, but you can begin with a general premise: Do the work to find an adviser. Don’t only let the services just come to you through marketing or sales pitches. Then, get started with the steps outlined in this guide.

• Review the website of a firm or adviser carefully. Set up a consultation and take notice of your surroundings to get a feel for a planner’s philosophy. Do you prefer a traditional office setting and an all-business discussion of your portfolio, or something different? At Chicory Wealth in Decatur, Ga., for example, you’ll find couches and reading lamps, rather than a conference table, and an atmosphere more reminiscent of a therapist’s office than a boardroom, says Maggie Kulyk, the firm’s founder. “Money creates stress, and stress creates bad decision-making,” she says. “We wanted to have a space where people can feel relaxed.”
• That comfort level translated into Woolf and his wife’s decision to become clients, working with the firm over the years on managing their money, making important financial decisions like deciding whether to buy a vacation home, and investing in sustainable and socially responsible companies.

David Woolf, 67, a foundation executive, says he was struggling over a decision to retire early when he set up a consultation with Kulyk six years ago. His previous advisers managed his money well enough, but he felt he needed more personal guidance. He immediately felt comfortable at Chicory, he says. “Their offices are very homey and their whole operation was very down to earth,” he says. “When you’re meeting at a conference table in a high rise, it’s a different feel.”

Looking for an investment adviser or a planner who might help with budgeting and other goals beyond investment advice? Work out a rough estimate of the range and the amount of services you are considering, so you can understand what fee arrangement is best for you. Do you need help on an ongoing basis, or for just a one-time event? If you require regular and consistent advice, then paying a percentage of your portfolio in fees every year might make sense. For an episodic event, you could be better off with an hourly fee.

• Be aware that fees can be tricky. You may think an hourly fee would be less costly, only to spend more time than you thought with an adviser because of a complex problem. If someone is charging you an annual percentage fee based on your assets under management, translate that into dollars and cents—1% may seem reasonable, but convert it into an annual dollar amount and it could be higher or lower than you think. If you’re working with an adviser who charges $250 an hour, be upfront about the issues you need help with, and get an estimate of how long the adviser thinks it will take to address them. Also, ask about the long-term fee structure. Would you start on a subscription basis and move eventually to a fee based on assets under management? “Be sure you know what you are getting into,” Benz says.

Understand what kind of adviser you are working with. Is he or she an independent registered investment adviser, a broker, or a certified financial planner (CFP)? Does she earn a commission on what she sells you, or is she a fee-only adviser? Getting a grasp on the basic definitions can help. Financial planners and advisers are sometimes interchangeable terms that generally refer to professionals who give financial advice. But almost anyone can call himself or herself a financial adviser, Benz notes. “Unfortunately, the barriers to entry in this field are very low,” she says.

To start, be aware of the basic categories of advisers, and then dig into the details of their roles and fees. For example, a registered investment adviser (RIA) and a broker-dealer can both buy and sell securities for you. But RIAs must act in your best interest and not recommend products that aren’t appropriate for you, while brokers charge commissions on trades and aren’t held to as high a standard. But some brokers are also registered as investment advisers, so you need to be sure to ask if your adviser will always act as a fiduciary, or in your best interest, and how the adviser is paid.

A CFP is someone who has passed a rigorous exam and met certain education and experience requirements. CFPs can help you with your portfolio, as well as a wide range of financial needs. Planners with NAPFA take an oath to be fee-only advisers. A chartered financial analyst, or CFA, is someone who also must pass exams and earn a CFA Institute designation. CFAs usually mostly work with clients on investments. A wealth manager is a type of financial adviser for high-net-worth clients, but keep in mind anyone can use the title.

• You can find a range of resources to review a professional’s background. Use the broker check tool at the Financial Industry Regulatory Authority, or FINRA, to make sure a potential broker or brokerage firm is licensed and to check for violations. Research an investment adviser firm or individual adviser using theSecurities and Exchange Commission’s tool. You can find a certified financial planner and research his or her background through the CFP Board’s Find a CFP Pro search tool, or locate a fee-only financial planner through napfa.org
• The CFP website also has a list of questions to ask potential advisers, including their approach to financial planning and what kind of clients they typically work with. Ask for references from other professionals, such as your accountant, and not just from relatives or friends, who may not be as knowledgeable, Benz suggests. Be aware many firms will refer you to other professionals, often as a perk or as an expansion of their own services. Often, advisers don’t charge for this and include the referrals with their overall services. Make sure to ask how the firm vetted any outside professional or consultant, or research them on your own.

Steve Curley, chief investment officer at WaterOak Advisors, in Winter Park, Fla., regularly connects clients with estate planners, tax attorneys and other professionals in the firm’s referral network. “When I first joined the firm over 12 years ago, we used to just manage money, but there’s been a huge change,” he says.

Finally, even in the age of the internet, some people identifying themselves as financial planners and advisers still go door to door to sell retirement and other financial products. You may know to steer clear, but an elderly parent or relative could be vulnerable. Benz discovered this when someone describing herself as a financial planner showed up on her disabled adult sister’s doorstep several times to sell her insurance and other products. Benz happened to be home during one visit and was able to keep her sister from buying anything.

Once you’ve finished your background work, it’s time to decide on an adviser. As with the rest of the financial planning world, you’ll be able to find the help you need, after you’ve done careful planning on your own. Don’t forget that financial soul searching should be an important part of your plan, too.

Self-employed workers and small-business owners who want an easy and inexpensive retirement plan should consider a Simplified Employee Pension IRA, or SEP IRA for short. Savers are also allowed to stash away more for retirement with a SEP IRA when compared to an employer-sponsored 401(k) plan.

>>For more 2020 tax changes, see Tax Changes and Key Amounts for the 2020 Tax Year.<<

SEP IRA Contribution Limits for 2020

For 2020, a self-employed business owner effectively can salt away as much as 20% of his or her net income in a SEP IRA, not to exceed the maximum contribution limit of $57,000. (That's up from the maximum in 2019.) In comparison, a traditional IRA limits contributions to $6,000 for 2020 for those younger than 50, or $7,000 for those 50 or older thanks to a $1,000 "catch-up" contribution.

SEP IRAs are available for a variety of small-business types, including sole proprietorships, partnerships, limited liability companies, S corporations and C corporations. The plans can be an especially attractive option for a small business with few employees, says Brad Ronsley, a certified financial planner in Glen Ellyn, Ill.

There's a twist, however, when it comes to SEP IRAs. Unlike some other retirement plans, a SEP IRA allows only the employer to contribute. And whatever percentage of compensation employers set aside in the plan for themselves is the same percentage of pay they must contribute for each eligible employee.

To be eligible to participate in an employer's SEP IRA, employees must be at least 21 years old, have worked at the business for three of the past five years and have earned at least $600 from the job in the past year.

SEP IRAs vs. Traditional IRAs

SEP IRAs follow many of the same rules as traditional IRAs. You generally must be at least 59 1/2 to take withdrawals from the account without paying a 10% penalty.

And once you turn age 72, you will have to start taking required minimum distributions (RMDs). You have until April 1 of the year after you turn 72 to take your first required minimum distribution, but after that you must take RMDs by Dec. 31 of each year (even if you took your first RMD on April 1 of that same year).

Since employers make the contributions, not employees, catch-up contributions for retirement savers 50 and over are not permitted in SEP IRAs.

A SEP IRA is easy to open and widely available at financial institutions that offer individual retirement accounts. A business owner must first complete an application with a brokerage or investment company such as Fidelity, Vanguard or Charles Schwab, says Todd Youngdahl, a certified financial planner in Falls Church, Va. This type of account allows business owners to develop an investment strategy and portfolio with many choices for investments, including mutual funds, exchange-traded funds and individual stocks, at little operational cost, he says.

"In most cases, there is no set-up fee for a SEP IRA and no annual custodial or maintenance fee," Youngdahl says.

A SEP IRA would be a good option for someone with a side gig outside of his or her regular job, says Mark Beaver, a CFP in Dublin, Ohio. It would allow the worker to contribute fully to his or her employer's 401(k) and use the SEP IRA for self-employment income, Beaver says.

After a years-long race among online brokers to slash investor costs to the minimum, in the end it only took a few days for a handful of major firms to cross the proverbial finish line. In October, Charles Schwab announced it would eliminate its $4.95 commission on all online stock, exchange-traded fund and options trades. Within a week, several big-name online brokers rolled out similar commission-free deals, including Ally Invest, E*Trade, Fidelity, TD Ameritrade and Trade­Station. Some trading fees still apply: Options traders at these firms must still pay contract fees, for instance. But those have been lowered in some cases, too.

Schwab isn't the first firm to offer free trading. Interactive Brokers launched IBKR Lite, a new online platform with free stock and ETF trades, just days before Schwab cut its commissions. And even before that, Firstrade, Robinhood and TradeZero America all offered free stock and ETF trading to customers.

A win for investors—mostly. Overall, the commission-free trend is a win for individual investors, especially those with small accounts for whom trading fees make up a larger percentage of their overall costs. But investors should resist the urge to get trigger-happy. Even with commissions at zero, "the behavioral costs"of investing aren't going to go away, says Charles Rotblut, vice president of the American Association of Individual Investors, a nonprofit investor education group. Investors who use free trades as an excuse to make frequent, emotional trades will likely erode their long-term returns, he says.

Be wary, too, of other ways that brokerage firms may try to get money from you. Brokerages hope the move to zero commissions will allow them to attract and retain more customers and charge them for other services, such as banking, asset management, advisory services and estate planning, says Rotblut. In many cases, the service may be a good fit. Just be watchful of the fees, what you're getting in exchange for them and how they compare with what other firms charge.

Brokers will continue to charge you in ways you can't see, too. One such way is through your cash. Every brokerage firm moves your uninvested cash into low-yielding accounts called sweep accounts, the default for investor cash balances. The brokerage firms plunk those balances in short-term investments and pay clients far less interest than the firms earn on the money. Ask your broker about the yield on your default sweep account; you may be able to choose a higher-yielding account. Fidelity’s zero-commission rollout included an announcement that the firm will automatically direct investor cash into its highest-yielding sweep accounts.

There’s also a potential cost to you with market makers—the businesses (dealers or securities exchanges) that actually execute your trades. Many brokerages accept payments for routing trade orders through certain market makers. Generally, when a broker accepts payment for order flow from a third party, it’s thought to cost you on your execution price, whether you’re buying or selling shares. A number of brokerages, such as Robinhood and TD Ameritrade, do this, and the practice could increase as brokers look for ways to fill the gap left by departing commission revenues. Notably, Fidelity says it does not accept payment for order flow.

The zero-commission news wasn’t a win for the brokers’ shareholders, at least initially. Schwab shares fell 10% on the day the firm announced its zero-commission policy, E*Trade stock sank 16%, and TD Ameritrade tumbled 26%. Credit Suisse analysts say firms such as Schwab that offer more-robust services are best equipped to withstand the commission cut. But firms that logged a chunk of total revenue in commissions, such as E*Trade and TD Ameritrade, could see significant hits to earnings.

Commissions on stocks and exchange-traded funds (ETFs) now come to a big fat zero if you use one of the four biggest online brokerages.

On Oct. 1, Charles Schwab (SCHW) announced commission-free trading on stocks, ETFs and options trades. Online-broker rivals E*Trade (ETFC) and TD Ameritrade (AMTD) followed suit within 24 hours, and Fidelity fell in line within a week.

Online trades were already incredibly cheap: Schwab and Fidelity charged $4.95 for each trade. It was only a little more expensive ($6.95) at E*Trade and TD Ameritrade. Still, money is money. So isn’t a zero-dollar trade a clear win for individual investors?

I don’t think so.

In fact, I think many investors are going to end up paying through the nose for these “free trades” in a way they didn’t expect.

The Cost of No-Commission Trading

Over the years, I’ve heard from several clients who have had trouble disciplining themselves from trading too frequently. That was in a low-cost world.

Now that trades are no-cost, it’s going to get a lot worse.

It’s difficult enough to match, much less beat, stock indexes without the drag of frequent trading. Frequent traders, from my experience, rarely do well in the stock market.

Terrance Odean – the Rudd Family Foundation Professor and Chair of the Finance Group at the Haas School of Business, University of California, Berkeley – performed several studies earlier this decade using trading data from a discount brokerage.

In one study, he found that trading costs did indeed weigh on the performance of investors who traded more frequently – a problem that no-commission accounts will render obsolete.

But no-commission trades won’t do anything about the results garnered from another study. Odean found that, “on average, the stocks that these investors bought went on to underperform the stocks they sold.”

Speculative trading (trades that didn’t seem driven by, say, tax purposes or rebalancing concerns) was even worse. Across all trades, stocks that investors bought underperformed those they sold by three percentage points – but that disparity widened to five percentage points when considering only speculative trades.

The zero-commission trade is bound to amplify the low-cost proposition of exchange-traded funds, accelerating the huge migration of investor dollars away from actively managed mutual funds. At TD Ameritrade, for instance, it still costs $49.99 to buy or sell some no-load mutual funds. And that doesn’t include the funds’ annual expense ratios. Who’s going to want to buy them when many ETFs’ management expenses are cheaper and are free to enter?

Now, if investors simply stuck to buying broad-based index ETFs and holding them, that actually would be a good thing.

But what’s far more likely is that a big swath of these investors will trade more – and try to pick ETFs and stocks that will beat the market over short time periods. After all, the trade is free – why not make it?

“Free trading doesn’t help investors. It only encourages bad behavior,” says Daniel Wiener, editor of The Independent Adviser for Vanguard Investors newsletter. “As someone who’s been managing client assets for more than 25 years, we talk about ‘time in the market, not market timing’ because long-term investing works.”

I couldn’t agree more.

Pressure Mounts on Brokerages

Then there’s the question of how these brokerages are going to make a buck. That’s not my problem or yours – yet. But it will be if it leads brokerages to increase their profits through hidden charges on investments, which it could well do.

In recent years, bid/ask spreads – the difference in price between what you can buy and a sell a stock for – have narrowed substantially to a penny or two on most trades. What some investors don’t realize is that those spreads represent the compensation that market makers take for facilitating the trades. Those spreads could widen as brokerages seek to fly in new revenue-generating methods under the radar.

Brokerages also make meaningful profits on idle cash in investor accounts. They pay too little on money market funds and they make it cumbersome to move your cash into and out of them. Fidelity, however, plans to automatically sweep idle investor cash into a government money market fund, thus forgoing much of the profit on money markets.

Margin accounts – where traders borrow against their existing holdings to invest more – are another big source of brokerage profits. And brokerages might need to lean on them more, potentially raising rates, to fill this new gap.

Brokerages also squeeze money out of mutual funds. They charge the funds an ongoing fee for offering funds on their platform, including much higher fees for offering them commission-free. Pay close attention to these fees; over time, they can cost you big money. Often, you are better off paying the small upfront commission when buying a fund.

The stocks of all three publicly traded brokerages that cut their commissions to zero cratered after the announcements. TD Ameritrade suffered the most because it’s seen as more dependent on trading income than the others. While their stocks have recovered somewhat since then, there’s no question that their businesses will take a hit. They’ll try to recover what revenues they can.

The trick for individual investors: Instead of trading more, use this sea change in the industry as an opportunity to trade even less.

If you continue to find yourself trading too much, it’s probably time to hire an investment advisor. Having the knowledge to be a good investor doesn’t make you one. The emotional side of investing is every bit as important.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Charles Schwab (SCHW) sent shock waves through the online broker space on Tuesday, announcing that, effective Oct. 7, it would eliminate commissions for stocks, exchange-traded funds (ETFs) and options listed on U.S. and Canadian exchanges.

In fact, that statement may have opened the flood gates. Rivals TD Ameritrade (AMTD) and E*Trade (ETFC) made similar commitments shortly thereafter, and Fidelity jumped in a week later.

Schwab, which currently charges a $4.95 commission on U.S. stock, ETF and options trades made online, says in its release that the move to zero “across all mobile and web trading channels” is here to stay.

“This is our price. Not a promotion. No catches. Period,” founder and Chairman Charles Schwab said in a news release. “Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path.”

Options traders, who currently pay an additional 65 cents per contract on top of the $4.95, will continue to pay that fee.

“This move will put pressure on other brokerage firms to respond – especially when it comes to commission-free ETF trading,” Christian Magoon, CEO of Amplify ETFs, told Kiplinger in response to Schwab’s move. “It will ultimately reduce costs for most investors.”

Indeed, later Tuesday evening, TD Ameritrade announced that it too would go commission-free, yanking its $6.95-per-trade charge on U.S. stocks, ETFs and options trades effective Oct. 3, presumably to get out in front of the Schwab rush. Then on Wednesday, E*Trade, which also charges $6.95 per trade, announced its own switch to a $0 base-rate commission, effective effective Oct. 7. Additionally, E*Trade lowered its options fees from 65 cents per contract to 50 cents; TD Ameritrade’s options fees remained at 65 cents.

Fidelity toppled last, announcing Oct. 10 that it would knock all commissions to zero, effective immediately. It added a couple of perks, too: Fidelity will “automatically direct retail investors’ cash into higher yielding alternatives available for new brokerage and retirement accounts, and provide industry-leading best execution practices with zero payment for order flow for stock and ETF trades.”

All four previously offered a select number of exchange-traded funds commission-free, but widening the exception to all ETFs is a clear win for consumers.

“From an ETF standpoint, many brokerage firms have been promoting commission-free ETF trading, but only on a small subset of ETFs,” Magoon says. “This system was bad for investors as it limited their ability to access the majority of ETFs commission-free.”

Schwab, which has no minimum account size to open a brokerage account, says the new pricing scheme will apply to any current web or mobile client, without requiring a new deposit or creating a new account.

While investors who stand to benefit from Schwab’s and TD Ameritrade’s changes may have been celebrating on Tuesday, investors in SCHW and other online brokerage companies headed toward the exits. Schwab’s stock finished 9.7% lower, while AMTD plunged 26% and ETFC declined more than 16%.

TD Ameritrade CFO Steve Boyle put a number to the pain in the company’s evening press release. “We expect this decision to have a revenue impact of approximately $220-240 million per quarter, or approximately 15-16 percent of net revenues, based on June Quarter fiscal 2019 revenue,” he wrote.

Schwab has less to lose on that front, says Brent Weiss, Chief Evangelist at Facet Wealth.

“Trading commissions account for less than 5% of Schwab’s revenue,” he says. “The war to zero was already occurring, and this is a smart move to put Schwab at the forefront of this story. Schwab makes the majority of its revenue from their net interest income, their cash holdings, and their managed investment vehicles, mutual funds and ETFs.

“This is a play for more market share so they can drive more revenue from other channels, which will easily make up for the revenue loss of eliminating trading commissions.”

Schwab isn’t the first to the zero-fee game, however.

Indeed, its announcement actually comes several days after Interactive Brokers Group (IBKR) unveiled its upcoming no-fee offering. In October, the company will launch IBKR Lite, which will provide commission-free trading on U.S. exchange-listed stocks and ETFs. However, unlike Schwab and TD Ameritrade, Interactive Brokers won’t offer the benefit through its legacy product.

And Robinhood, a Silicon Valley upstart that launched in 2012, has offered no-commission trading for years. In fact, its growing popularity, especially among millennials, has led market watchers to wonder when the larger brokerage companies would finally follow suit.

“The changes taking place across the brokerage industry reflect a focus on the customer that’s been inherent to Robinhood since the beginning,” Robinhood spokesperson Jack Randall says.

When it comes to satisfying their clients, brokerages are aiming at a moving target. And considering that different investors may have wildly different needs, maybe it’s fairer to say that brokerages must hit several moving targets.

Our 2019 online broker ranking recognizes that no brokerage can hit the bull’s-eye for every type of client, and that the firm with the broadest appeal may not meet your specific needs. But ultimately, we favored firms that could do the most for most investors.

This year’s winner: E*Trade, with Interactive Brokers and Fidelity close behind. The results show, however, that many firms have excellent services to offer. In the seven categories we used to rate the brokerages, six different firms won the top ranking.

As investor needs and preferences change, brokerages must adapt. Brokerages’ mobile apps have grown more sophisticated as more clients have demonstrated that they like to do business on the go. And as investors have demanded lower costs, brokerages have trimmed commissions and fees across the board.

But brokerages also need a keen ear for clients’ particular needs. Some clients want to be left alone to do their own thing, while others want their hand held. Some want to pay as little as possible to invest, and others are willing to pony up enough in assets to gain access to their own personal planner.

Ally Invest president Lule Demmissie, for instance, says her firm’s clients value simplicity, and a major focus of the firm’s continuing platform overhaul is to make it easier for clients to understand Ally’s products. The buzzword often heard in a recent meeting with Ally representatives: de-jargoning. By contrast, the average TradeStation client is an experienced trader in search of sophisticated tools that will help him or her gain an edge in active trading.

Nearly every broker says mobile investing has become essential, and mobile functionality received slightly more weight in our ranking calculation this year, as did tools and research, which are valuable no matter what kind of investor you are.

To be included in our survey, firms had to clear a few hurdles, such as offering a mobile app and allowing clients to trade stocks, mutual funds, exchange-traded funds and bonds. Firms that didn’t qualify may still be worth considering. Among firms that declined to participate in our survey: eOption, T. Rowe Price, Vanguard and You Invest by J.P. Morgan. Read on to see how firms performed in seven categories.

Commissions & fees

Thanks to ongoing price wars, the cost of investing these days is lower than ever. So how does a broker separate itself from the pack when even the pricier shops charge the price of a side salad to trade stocks and ETFs? By offering free trading.

At some brokerages, what you’ll pay in commissions may vary depending on the size of your account and how often you trade. At Firstrade, the calculus is simpler: Customers pay no commissions to trade stocks, ETFs, mutual funds and options, making it a runaway winner in the category.

A few other brokers offer a fixed price for stock and ETF trading, regardless of the assets in your account or how many shares you trade. Of those, TD Ameritrade is the most expensive ($6.95 per trade), followed by Fidelity and Charles Schwab (both $4.95).

E*Trade lowers its $6.95 standard commission to $4.95 for investors who make 30 trades per quarter. If you trade that frequently at Ally Invest (or hold at least a $100,000 daily balance in your account), you’ll get $1 off the standard $4.95 commission.

WellsTrade and Merrill Edge might slash your fees based on your relationship with their affiliated banks. WellsTrade customers who link their account to a Portfolio by Wells Fargo checking account see their commission knocked down $3 from the standard rate, to $2.95. Customers enrolled in the Bank of America (Merrill’s parent) Preferred Rewards program with a minimum of $20,000 in combined assets qualify for at least 10 free trades per month, avoiding the standard $6.95 rate. The firm lowered the qualifying asset threshold earlier this year from $50,000. As a result, according to Merrill, more than 80% of trades on its platform are commission-free.

Interactive Brokers and TradeStation offer excellent deals for frequent traders. Customers at both firms can pay as little as a fraction of a cent per share, depending on the pricing plan they choose and the quantity of shares traded. Costs can add up if you don’t trade much, however. Interactive Brokers customers with less than $100,000 in their account who fall short of $10 in commissions per month pay the brokerage the difference. TradeStation investors paying by the share are subject to steep inactivity and low-balance fees.

Most brokerages charge $1 per bond to trade municipal and corporate debt. Under this scenario, an investor who purchased 20 Lockheed Martin bonds at $142.94 apiece (for a total face value of $2,858.80) would pay $20 in commissions. There are a few exceptions. WellsTrade and Firstrade both trade bonds on a “net yield” basis, folding a markup into their bond pricing. Interactive Brokers charges 0.1% of corporate bonds’ total face value on the first $10,000 in face value and 0.025% thereafter (the percentages are lower for munis and Treasuries). On the same bundle of Lockheed bonds, for example, an investor would pay $14.65 in commissions. Four brokers—E*Trade, Fidelity, Merrill and Schwab—charge nothing to trade Treasury bonds; the others’ fees vary. TradeStation isn’t geared toward bond investors, charging a $14.95 commission plus $5 per bond of any type.

“On a bundle of 20 bonds trading at $142.94 apiece, Interactive Brokers would charge a commission of $14.65 (“We Rank the Online Brokers,” Oct.).

Investment choices

Any brokerage worth its salt gives customers a wide array of investments to choose from. The top firms in this category go further by providing deep rosters of high-quality investments that customers can get on the cheap.

TD Ameritrade boasts the largest number of mutual funds that customers can purchase with no sales or transaction fee: 4,102. E*Trade, Fidelity, Firstrade, Interactive Brokers and Schwab all reach the high 3,000s or better. E*Trade claims the most funds—3,137—with a three-star rating or better from investment research firm Morningstar, with Schwab, Merrill and Fidelity not too far behind.

Firstrade boasts the largest list of commission-free ETFs, with an astonishing 2,200. The totals at TD Ameritrade, Schwab and Fidelity number in the 500s, with a steep drop-off after that. Fidelity’s commission-free ETF roster is full of low-cost options, coming in with the lowest average expense ratio of the bunch, at 0.36%.

No brokerage offers more corporate and municipal bond trading on the secondary market than Interactive Brokers. E*Trade reigns supreme with new-issue corporates, and Fidelity has the most new-issue munis. International investors will appreciate that Interactive Brokers offers trading on 85 exchanges in developed and emerging markets; Schwab comes in second with 61. Fidelity made the most U.S. initial public stock offerings available to investors—271 over the 18 months ending June 30. Second place: TradeStation, with 55.

Mobile apps

Brokerage reps say their customers interact with their mobile platforms more than ever before. High marks in this category went to brokers whose mobile apps offered customers the functions and convenience of traditional websites tailored to the devices on which, studies show, people spend some 20% of their waking hours.

Of the brokerages we surveyed, only Interactive Brokers’ mobile app handles stock, mutual fund, ETF and bond trading. Fidelity does not offer bond trading on its mobile app, but otherwise, the apps at Fidelity and Interactive hit practically every mark we looked for. You can trade options or trade on margin (that is, using a loan from the broker), for instance, and both apps allow customers to pay bills from their brokerage accounts, provide real-time streaming quotes and send news alerts on stock positions. Interactive Brokers’ app offers robust charting, with 70 technical indicators for users to apply to their charts. (Only Firstrade’s mobile chart has more indicators to choose from, but because the app lacks key functions, such as mobile check deposits, it brings up the rear in the category.)

SEE ALSO: See Kiplinger’s 2019 Online Broker Rankings

E*Trade, Merrill Edge and Schwab also score well in this category, with all offering most of what we looked for (minus bond trading) as well as handsome mobile interfaces. E*Trade lost a few points for its relatively basic mobile charting. Merrill’s score suffered because users can’t make ACH fund transfers, and Schwab got dinged because users can’t pay bills from a brokerage account through its app. A major blow to the scores of Ally, Firstrade, TD Ameritrade, and TradeStation: None of their apps allows for mutual fund trading.

Tools

Brokerages that offer an array of high-quality, low-cost investments give their customers many ways to invest to help meet their goals. But most investors need help charting a path toward those goals and narrowing down the investments that are best for their particular portfolios.

Most of the brokerages offer plenty of tools aimed at helping investors do just that. Nearly all of them offer a tool that shows a client’s progress toward a goal, and all but a few show users an aggregate view of disparate accounts, giving them a holistic view of their financial life. All but Firstrade and WellsTrade show investors how their portfolio’s performance stacks up against appropriate benchmarks. Five firms—E*Trade, Fidelity, Interactive Brokers, TD Ameritrade and TradeStation—offer some form of virtual trading, so you can test-drive strategies before putting them into action.

The leaders in this category are committed to educating their clients. Schwab hosted more than 5,000 live educational events for clients in 2018 on saving and investing topics ranging from estate planning to behavioral finance. Merrill Edge has more than 3,600 educational videos and webinars on its site. TD Ameritrade has eight or nine educational webcasts and two blog posts daily, in addition to the 7.5 hours of live market commentary that runs weekdays on its proprietary TD Ameritrade network.

For investors with some expertise, virtually all of the top performers in the category offer stock charts as well as stock, mutual fund and ETF screens with dozens of data points to help you narrow down your investment search. Kudos go to TradeStation, whose scanner allows traders to screen stocks, mutual funds and ETFs for more than 2,000 data points. E*Trade, Fidelity, Merrill Edge, Interactive Brokers and TradeStation all allow investors to screen stocks based on broad investing themes, such as cloud computing or robotics.

Research

Investors who want basic research on a stock, bond, mutual fund or ETF can likely find what they’re looking for at most brokerages, whose summary and quote pages all include common data points, such as earnings, revenues, interest payments and expense ratios. But the more sophisticated you are about your investments, the more clear, high-grade research you’ll need.

All but two firms—Ally Invest and Firstrade—show consensus corporate earnings estimates from Wall Street analysts. Only Firstrade and TradeStation don’t provide any sources of bond market research. All but Fidelity, Interactive Brokers and TradeStation offer some research from Morningstar that is usually available only to Morningstar’s premium customers. Ally Invest and Firstrade offer full Morningstar analyst reports on stocks, mutual funds and ETFs.

Interactive Brokers reported the most sources of investment research in our survey, followed by Merrill Edge, Fidelity, TD Ameritrade and Schwab. But both Fidelity and Interactive Brokers boast a quantity of research that belies a lack of quality, with most of the reported research missing in-depth analysis in favor of quantitative, oftentimes computer-generated reports.

SEE ALSO: Need Financial Advice? How to Choose Between Robo and Human Help

Interactive Brokers does score a few points, along with Ally Invest, Merrill Edge, Schwab and TD Ameritrade, for offering stock analyst reports from investment research firm CFRA. Firms also earned points if they provided stock research from an investment bank. For example, Schwab and TD Ameritrade include reports from Credit Suisse (E*Trade makes Credit Suisse reports available for customers with more than $100,000 in assets). WellsTrade offers reports from Wells Fargo Securities, and Merrill Edge provides research from Bank of America Merrill Lynch Global Research.

For investing ideas curated by a professional, six of the 10 (all but the bottom four scorers in this category) boast lists of suggested mutual funds handpicked by analysts from Morningstar, investment banks or the brokerages’ affiliated advisories (or some combination of the three). Merrill Edge, Schwab and WellsTrade provide their own in-house lists of stock recommendations as well. Stocks in Merrill Edge’s U.S. 1 and Endeavor lists, for instance, are chosen by Bank of America Merrill Lynch research analysts.

Advisory services

Firstrade and TradeStation don’t offer advisory services, and WellsTrade declined to compete in this category. The rest of the brokers surveyed offer some form of advice to clients. Depending on your investing preferences and account assets, you may find yourself following the lead of an algorithm-based “robo” adviser, a real-life financial planner (some certified financial planners, some not) or some combination of the two.

Fidelity and Schwab sit at a virtual tie atop the category, thanks to their budget-friendly robo-advisory services. Fidelity Go comes with a minimum investment of just $10, by far the lowest barrier to entry of the group (though at $100 and $500, respectively, Ally Invest’s and E*Trade’s robos are an option for most investors). Fidelity Go’s 0.35% management fee is the second-highest (Merrill Edge charges non-Preferred Rewards clients 0.45%) but includes expense ratios on the underlying funds that make up the plan’s portfolios.

The $5,000 minimum for Schwab’s robo service, Intelligent Portfolios, ties with the offerings from Interactive Brokers, Merrill Edge and TD Ameritrade as the most expensive. But once you’re in the door at Schwab, things get cheap. Investors pay no management fee, and expense ratios on its portfolios are as low as 0.08%.

Schwab’s service offers 36 portfolios, second to Interactive Brokers, whose advisory arm, Interactive Advisors, offers 75 choices. At Interactive, investors can elect to be placed in an asset allocation portfolio that is based on their answers to a nine-question survey, or they can choose from a menu of portfolios created by investment pros at advisers such as State Street Global Advisors and Legg Mason. Management fees range from 0.08% to 1.5%, and the average portfolio charges an expense ratio of 0.14%.

The robos at TD Ameritrade and Merrill are worthy options, but they got dinged in our ranking for requiring slightly higher minimums and charging a bit more in expenses than their peers. Merrill, Ally and Interactive Brokers lost points for lacking some of the amenities expected by high-net-worth clients, such as estate planning. All but Ally will assign an account representative to clients who meet a certain asset threshold; Fidelity, Schwab and TD Ameritrade offer a CFP. You need $25,000 in assets to access a CFP at Schwab, one-tenth of the $250,000 required by Fidelity and TD Ameritrade.

User experience

Online brokers strive to make interactions seamless, with platforms that are intuitive, transparent and informative. With that in mind, our team of investing writers tested each of the brokers’ websites and mobile apps and rated their experiences.

Merrill Edge scored top marks. A makeover to the website last year slashed the number of navigation links from 149 to 75, effectively cutting in half the clicks needed to browse the site, says Merrill exec Cory Triolo. Users can summon a trade ticket from any page on the site and don’t have to navigate away to execute a trade.

The platform’s various “story” modes—applicable to stocks, mutual funds, ETFs and client portfolios—ask a series of questions essential to understanding the investment instrument at hand, each time providing a matter-of-fact answer along with educational content and actionable advice tailored to the individual investor. “We want to really guide you down the path and make finding ideas easy,” says Merrill’s Steve Lucas.

Investors will find a similar philosophy at E*Trade, which scored high marks among our testers for the intuitiveness of its platform and the ease with which users could find investment research. Stock-quote pages are full of useful research on the web and mobile platforms, and investors looking for investment ideas can start with the firm’s thematic investing page, which recommends ETFs that play on themes such as cybersecurity, self-driving cars and millennials.

Schwab and TD Ameritrade post good scores in this category as well. TD customers, who could already interact with their brokerage through Facebook Messenger, Apple Chat, Twitter direct messages or by talking to their Amazon Alexa device, can, since July, access brokerage information in their car through Apple CarPlay, Android Auto and Echo Auto.

Other brokerages were hit-and-miss. Our writers loved Fidelity’s robust ETF quote page, for instance, but then wondered why similar pages for mutual funds were practically devoid of information. Firstrade’s website was the speediest of the bunch, and operating its mobile trade ticket was a breeze, but it was nearly impossible to find serious research on the mobile app. Ally’s and WellsTrade’s platforms were mostly a miss: clunky, sparse and difficult to navigate. Though Interactive Brokers and TradeStation both offer platforms and tools that are cutting-edge for advanced, active traders, neither site proved terribly intuitive to the everyday investors among us.

Until a few years ago, the American Funds family of mutual funds was available to individual investors only through intermediaries such as brokers and advisors. But now they’re available to anyone through online brokers, such as Fidelity and Schwab.

That’s a huge deal because, in my view, the best American Funds are among the top actively managed, large-company funds you can find anywhere. The funds haven’t attracted much attention from individual investors because they had been marketed solely through intermediaries and because the “American” name is shared by at least two other fund firms.

But these mutual funds demand your attention. American Funds’ products aren’t flashy, but they have provided long-term, index-beating results. What’s more, the funds have held up especially well during bear markets, which is critical to retirement investors. All of American Funds’ U.S. stock mutual funds lost substantially less than the Standard & Poor’s 500-stock index in the 2007-09 meltdown. “All 11 funds with at least a 20-year track record are ahead of their most relevant benchmark over that time period, which included two severe bear markets,” says Alec Lucas, a senior analyst at Morningstar who covers a dozen American Funds products.

American Funds aren’t perfect. The company’s mutual funds are too big to invest meaningfully in stocks of small companies. Returns on the firm’s bond funds have been uninspiring, although the firm has made several new hires designed to remedy that problem. But for large-cap stocks, both here and abroad, they’re hard to beat.

Today, we’ll look at five of the best American Funds for retirees – and teach you more about what the fund provider does best.

Data is as of May 28, unless otherwise noted. Three- and five-year returns are annualized. Yields represent the trailing 12-month yield, which is a standard measure for equity funds. American’s no-load F1 shares can be bought through online brokerages such as Fidelity and Schwab.

• Market value: $96.5 billion
• Yield: 1.5%
• Expenses: 0.67%

One key to American Funds’ continued success – even as it has grown into one of the largest fund firms in the country – is its unique multi-manager system. Each fund is guided by several managers, each of whom is assigned a portion of the fund’s assets to manage independently. Much of his or her compensation depends on how well that slice of the pie performs over rolling periods of one, three, five and eight years – with the emphasis on five and eight years.

• Fundamental Investors F1 (AFIFX, $57.09), for instance, uses six managers to provide investors with growth and income … albeit “with an emphasis on growth over income,” as the fund’s page states.

AFIFX is often the most aggressive of the American funds, yet it’s still slightly less volatile than the S&P 500. The fund has topped the index by an average of 76 basis points (a basis point is one one-hundredth of a percent) per year over the past 15 years.

It currently has 5% of assets in cash and 16% in foreign stocks, both of which have muted recent returns. As a result, the fund’s 10.4% year-to-date performance is more than three percentage points worse than the S&P 500. However, retirees will appreciate that the fund did hold up better than the S&P 500 during both of 2018’s market selloffs.

The fund has a flexible mandate, but it has an unmistakable growth tilt. Technology stocks, at 21% of assets, are the fund’s biggest weighting by a lot. And its top four holdings – Microsoft (MSFT), Broadcom (AVGO), Facebook (FB) and Amazon.com (AMZN) – are either in the technology sector or are tech-heavy members of other sectors.

• Market value: $54.6 billion
• Yield: 1.9%
• Expenses: 0.67%

The best American Funds are also helped by relatively low expenses. F1 shares – the share class available without a sales charge to individual investors through online brokers – aren’t as cheap as Vanguard funds. But they typically charge less than most competitors’ actively managed funds.

• American Mutual F1 (AMFFX, $40.11) is just such a fund, with its 0.67% annual expense ratio well below the category average fee of 1.09%.

American Mutual also could win a prize for having the most boring fund name imaginable. That’s fitting, given that it’s one of the provider’s least volatile pure stock funds. It strives to keep risks low and focuses on not losing money – ideal for conservative investors.

Boring, after all, can be good when it comes to investing your hard-earned cash. Over the past 10 years, the fund has lagged the S&P 500 by an average of a little less than two percentage points per year. But it has been 20% less volatile, holding up better than the benchmark during crummy markets.

AMFFX invests primarily in undervalued dividend-paying stocks. When opportunities are scarce, the fund turns to cash and bonds – right now, 12% of assets are in the former, and just 1% in the latter. Health care is top dog at more than 15% of the fund’s assets, with AbbVie (ABBV), Amgen (AMGN), Abbott Laboratories (ABT) and Procter & Gamble (PG) all earning top-10 weights.

• Market value: $85.0 billion
• Yield: 0.9%
• Expenses: 0.82%

The corporate culture at American Funds is, in my view, a crucial ingredient in its success. Managers typically stay at the firm for their entire careers. The average manager has 27 years of industry experience, including 22 years at American Funds itself.

• New Perspective F1 (NPFFX, $42.12) isn’t just among the best American Funds – in my estimation, it’s at the top of the mountain. This is a global fund, meaning it invests in U.S. and foreign stocks. That gives the fund’s seven experienced managers – averaging 28 years of investment industry each – freedom to invest wherever they see opportunity.

When I think I’ve found a good manager or managers, I like to give them the ability to look anywhere for mispriced stocks.

This fund focuses on global trade patterns, making it about as timely as any fund you can find. The only constraint on the managers: Each holding must receive at least 25% of revenues from outside their home country. Right now, 52% of companies are domiciled in the U.S., 23% in Europe, 14.2% in Asia/Pacific Basin and 4.7% in “other.” Top holdings are a who’s who of big tech-minded companies including Amazon.com, Facebook, Microsoft and Taiwan Semiconductor (TSM).

Returns have been terrific. NPFFX beat the MSCI ACWI ex-USA Index (a major international benchmark) over the trailing 15-year period by three percentage points annually, the 10-year by 5.6 points and the five-year by 6.6 points. In fact, New Perspective F1 has beaten the index in every significant time period. And the fund has finished in the top half among its world stock competitors every year but one since 2009.

• Market value: $153.4 billion
• Yield: 1.1%
• Expenses: 0.85%

Can anyone run a $154 billion fund successfully?

Well, the nine managers at EuroPacific Growth F1 (AEGFX, $49.89) – each responsible for a portion of its assets – have put up sparkling numbers. Over the past 10 and 15 years, it has beaten the MSCI ACWI ex-USA Index by an average of more than one percentage point per year. It has also topped the benchmark in the trailing three- and five-year periods.

American Funds’ emphasis is always on long-term results, which is the name of the game in retirement. Stocks are typically held four or five years. The managers and analysts are patient investors, who spend most of their time picking good companies at attractive prices, rather than on the macro environment. No surprise, then, that stocks in AEGFX are typically held for about four years.

EuroPacific Growth F1, unsurprisingly, focuses on growth stocks – more than 17% of the portfolio is invested in financials such as pan-Asian life insurance company AIA Group (AAGIY) and Indian baking firm HDFC Bank (HDB), with another 14% in consumer discretionary and 12% in technology.

AEGFX isn’t afraid of emerging markets, either, allocating a third of its assets to EM stocks.

• Market value: $38.0 billion
• Yield: 0.82%
• Expenses: 1.01%
• New World F1 (NWFFX, $63.22) offers a unique approach to emerging markets investing – and one that’s been remarkably successful. You could call it a chicken’s approach to emerging markets, but that’s been best way to invest in this tricky sector for the past seven years, which have seen EM equities badly lag U.S. stocks.

New World invests in the stocks of EMs, but also developed countries. In fact, NWFFX is only required to have 35% of assets in pure emerging markets stocks. Other stocks can be selected, so long as they do a lot of business (“generally 20% or more,” according to the prospectus) in merging markets.

NWFFX currently has nearly 43% of its assets wrapped up in emerging markets, with more than 18% in the U.S. and another roughly 26% in other developed markets (the rest is in cash or invested in fixed income). Top holdings include American powerhouses such as Google parent Alphabet (GOOGL) and Mastercard (MA), but also India conglomerate Reliance Industries and Chinese e-commerce giant Alibaba (BABA).

Consider the record. Over the past 15 years, the fund has beaten the MSCI Emerging Markets Index, the MSCI ACWI ex-USA Index and the S&P 500. Over the past 10 years, New World has trailed the S&P 500 but topped the two foreign indexes. The same goes for the past one, three and five years.

Don’t expect this fund to beat its peers during a bull market in emerging markets stocks. But the rest of the time, this is one of the best American Funds offerings you can buy.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Like the Hundred Years’ War between England and France some six centuries ago, the fee war between fund firm giants Fidelity and Vanguard is more about ongoing skirmishes than a single, conclusive battle. The latest salvo comes from Vanguard.

Changes announced today by the Malvern, Pennsylvania-based fund behemoth will save money for investors via two steps. First, Vanguard lowered the investment minimum for its Admiral share class index mutual funds – about 38 portfolios – from $10,000 to $3,000. As part of the move, investors holding the Investor share class, which required a $3,000 minimum to buy shares for the first time, will be moved into the Admiral share class. New buyers are being directed away from Investor class shares and toward Admiral class shares.

That’s where the savings come in: Admiral share classes cost 15% to 71% less than their Investor class counterparts. Vanguard estimates existing shareholders of its Investor share class index funds – some 1.5 million investors – stand to save about $71 million in annual fees, based on current assets. “Our unique, client-owned structure enables us to consistently pass along economies of scale and lower the cost of investing for our clients,” Vanguard CEO Tim Buckley says.

The shift includes three of the biggest index funds in the country, measured by assets: Vanguard Total Stock Market Index Fund (VTSAX), Vanguard 500 Index Fund (VFIAX) and Vanguard Total Bond Market Index Fund (VBTLX), which together have some $1.3 trillion combined in total fund assets.

Vanguard also has filed with the SEC to launch Admiral share versions of five other index funds. Vanguard expects those shares to be available in the first quarter of 2019.

Vanguard’s cost cutting comes after what looked like a “game over” move from Fidelity. In an industry first, the Boston-based firm in August 2018 launched two index mutual funds that charge no fee at all. One of them, Fidelity ZERO Total Market Index Fund (FZROX), amassed $1.3 billion in assets in the first three months since it opened. Fidelity launched another two portfolios in September 2018: an index fund for small and mid-size U.S. firms, and a foreign-stock index fund.

Fund firms will no doubt continue to battle it out, but it’s clear who the ultimate winner is in these fee wars – investors.

Question: What are the benefits of giving appreciated stock to a donor-advised fund if I don't plan to itemize my deductions this year?

Answer: Giving appreciated stock to a donor-advised fund -- or directly to a charity -- gives you a tax benefit even if you don't itemize. By doing so, you avoid having to pay taxes on the capital gains that have accumulated through the years. But if you sell the stock and write a check to the charity instead, you'll have to pay capital gains taxes. (If the stock has lost money, however, it's usually better to sell it first and then write a check to the fund or charity, so you can benefit from the capital loss.)

Giving appreciated securities to a donor-advised fund rather than directly to a charity will make it easier to spread your contributions to more charities over a longer time period. You can make your contribution now, then have an unlimited amount of time to decide which charities to support. You technically "recommend" that the donor-advised fund makes the grants to the charities, but grant recommendations are generally approved as long as the charity is an eligible 501c3 organization (the IRS designation for a tax-exempt charitable organization). You can usually make grants to charities that are as little as $50 or as large as your account balance.

The money remains in investing pools (there are usually several portfolios of mutual funds to choose from) until you give it to charity. Some families keep the money in the account for the long term and use the donor-advised fund to teach their children and grandchildren about charitable giving (see Smart Strategies for Giving to Charities).

Fewer people are expected to itemize since the new tax law nearly doubled the standard deduction. But a donor-advised fund can also help you make a few years' worth of contributions in a single year, so you can cross the threshold that makes filing an itemized return worthwhile. You'll be able to deduct the contribution in the year you give the stock or other money to the donor-advised fund, even if you don't grant the money to the charities for several years. The size of the deduction will be the value of the stock on the day you make the contribution, as long as you've held the stock for longer than a year.

Be aware that some small charities aren't set up to accept appreciated securities, but donor-advised funds help in that case, too. Donor-advised funds are offered by many brokerage firms and community foundations (you can find community foundations at the Community Foundation Locator). If you already have an account at the brokerage firm, it may be very easy to give stock or mutual funds. Schwab customers, for example, can go online and click a few buttons to move the money from their brokerage account to their donor-advised fund. Many donor-advised funds also accept other kinds of appreciated assets that some charities may not be set up to accept. Schwab and Fidelity, for example, accept privately held stock, real estate and other complex investments on a case-by-case basis.

Schwab and Fidelity require a minimum contribution of $5,000 to open a donor-advised fund. Vanguard requires $25,000 to get started.

As the world of online brokers continues to evolve, it has become increasingly difficult for firms to stand apart from one another. In this year's ranking, TD Ameritrade beat Charles Schwab by less than a nose, with Fidelity and then E*Trade close behind. But zoom in, and you’ll find that each firm, along with the four others we surveyed, has something different to offer—a niche that lets it shine in one way or another.

With commissions about $7 or less at most firms, we gave that category less weight this year. But because the firms we surveyed told us that investors increasingly interact with them on smartphones or tablets, we gave more importance to mobile apps. The biggest, best-known firms, you’ll notice, score better overall in our survey. But almost all of the firms let you trade stocks, exchange-traded funds, mutual funds and individual bonds online, as well as offer some online advisory services.

Read on to find out how each of these eight firms scored—and which would be best match for you.

With additional reporting by Kyle Woodley

Category weighting for overall score: commissions and fees, 10%; investment choices, 20%, mobile app, 20%; user experience, 20%; ease of use, 15%; mobile, 10%; advisory services, 15%; and tools, research and advisory services, roughly 12% each.

Since our story went to press, Firstrade announced it would offer free online trading for stocks, ETFs, options and mutual funds (down from $2.95 per trade). Also, Ally Invest announced it would offer more than 100 exchange-traded funds commission-free (in other words, there is no sales charge to buy or sell shares) to customers on its online trading platform. (Previously, all ETFs purchased on the Ally Invest platform incurred a $4.95 commission; $3.95 for active traders or customers with high balance.)

TD Ameritrade distinguishes itself with its commitment to investor education. The website’s education center is a treasure trove of short explanatory videos on everything from the basics of money market accounts to the ins and outs of cryptocurrency. Longer and more detailed online courses are also available, with titles such as “Trading Options” and “Fundamental Analysis.” The firm held nearly 6,000 webinars on online-trading education in 2017 alone.

TD Ameritrade also scores points in user experience for meeting clients where they spend their time—texting on their smartphones or browsing Twitter or Facebook on a computer, tablet or smartphone. Anyone can contact TD through direct messages on Twitter, on Facebook Messenger, through the iPhone Messages app or by talking to their Amazon Alexa–equipped device.

For example, you might use Facebook’s messaging feature to ask a broad investing question, get a stock quote, or even buy or sell shares—all without leaving the Facebook app. TD uses artificial intelligence to generate automated responses to your query; if that doesn’t satisfy you, TD will automatically connect you with a live representative.

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Schwab’s advisory service stands out for the breadth, quality and price of its offerings. Schwab’s robo adviser, Intelligent Portfolios, does not charge an asset-management fee, which sets it apart from others. You need $5,000 to open an account at Intelligent Portfolios, which is on the high end of minimums (but not the highest). But once funded, Intelligent Portfolios use low-cost ETFs to tailor dozens of portfolios (43 in all) tailored to your goals, tolerance for risk and stage in life.

Intelligent Portfolios has a couple of downsides: It requires $5,000 or more to start, and its most aggressive portfolio currently holds a hefty 7% cash position, a potential drag on returns. But according to The Robo Report, which tracks the performance of digital advisory portfolios, Schwab has achieved good results over time.

Schwab also offers more no-fee mutual funds than any other broker: at last count, 4,121.

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Plenty of brokerages offer reasonable fees and commissions, thanks to the decades-long brokerage price wars. The latest salvo from Fidelity eliminated all account fees, including fees to wire money domestically, among others. The firm offers more than 4,000 mutual funds with no sales load and no fee, and is now also offering index funds with a 0% expense ratio.

Fidelity’s mobile app wins the highest marks for checking all the essential boxes. You can buy or sell stocks, ETFs, mutual funds and bonds on Fidelity’s app—no other firm in our survey can say the same. But Fidelity also excels in this category because its app offers virtually all of the other conveniences that brokerage clients now expect, such as mobile bill pay and check deposit, as well as the ability to set up watch lists and view educational videos.

Fidelity is the best choice for investors who want access to initial public offerings. Over the past two calendar years, Fidelity has made 397 IPOs available to customers, compared with 64 for E*Trade and 48 for TD Ameritrade. In each case, gaining access to shares comes with eligibility requirements.

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E*Trade has made it a priority to teach and inform customers about investing. “Our goal is to make investing easier for people,” says E*Trade’s Rich Messina. E*Trade caters to beginner investors with “All Star” lists of recommended ETFs, stocks and mutual funds, plus ready-to-go ETF portfolios.

Bond traders will appreciate E*Trade's access to tens of thousands of corporate and municipal bonds.

We knocked E*Trade for its sprawling and sometimes lumbering website, including the way graphics show up (or don’t) on E*Trade’s site.

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Customers with deep pockets can pay $0 in commissions at Merrill Edge. If you have an active Bank of America checking account and a three-month average balance of $50,000 at Bank of America, Merrill Edge or Merrill Lynch investment accounts (singly or in combination), you can join a rewards program and qualify for no commissions on up to 30 stock and ETF trades per month. Investors with a $100,000 average balance can get 100 free trades every month.

Merrill’s platform transforms the sometimes-daunting work of analyzing your portfolio and researching stocks into an engaging experience. In “Portfolio Story” mode, the site poses eight questions that investors should ask about their portfolio, from “How is my portfolio performing?” to “What could I potentially earn?” It even examines how your investments rank on certain environmental, social and corporate governance measures. You'll find the same approach for stock research with “Stock Story,” a similarly engaging tool that investors can use to work through four essential questions of stock analysis.

Merrill Edge’s app is also worth a mention. Its intuitive interface, particularly when it comes to stock research, makes it one of the most engaging apps on our list. The app lost a few points, however, because it doesn’t offer bond trading or let you transfer money electronically between other banks. (Transfers between Bank of America and Merrill Edge, however, are instantaneous.)

Firstrade slays the competition in our survey with its roster of 703 commission-free exchange-traded funds. It includes 15 of the Kiplinger ETF 20, our favorite ETFs, including iShares Core S&P 500 (symbol IVV), Vanguard Dividend Appreciation (VIG) and Pimco Active Bond (BOND).

Firstrade also offers access to more corporate and municipal bonds than any broker in our survey, but trades them on a “net yield” basis. That means the price of the bond includes a mark-up that represents the dealer’s profit. This pricing model is generally more expensive and is certainly less transparent than the flat fees others offer.

Currently the firm offers no advisory services whatsoever, though it is considering launching an online robo advisor later this year.

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Ally Invest offers a digital advisory service, Advisors Managed Portfolio. It charges a 0.30% management fee and requires just $2,500 to get started. But the firm suffers in this category ranking because it doesn’t offer as hearty an array of planning advice (estate planning specialists, for example) as other firms.

Ally Invest also fell behind in our mobile app judging, lacking mutual fund or bond trading, mobile check deposits, or bill pay.

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At WellsTrade, which is affiliated with Wells Fargo, you can get a break on stock and ETF commissions if you have money in a checking or savings account at the associated bank. For instance, WellsTrade customers who link their brokerage account with a Portfolio by Wells Fargo checking account can get their stock commissions knocked down to $2.95 from the typical $5.95 charge.

We were unable to get a demo account to test Wells Fargo's user experience.

When Secretariat won the Belmont Stakes in 1973, securing his place in racing history as a Triple Crown champion, he beat the competition by a whopping 31 lengths, or about 248 feet. The results of this year’s online broker survey aren’t as clear-cut. In a photo finish, TD Ameritrade beat Charles Schwab by less than a nose, with Fidelity and then E*Trade fast on their heels.

As the world of online brokers continues to evolve, it has become increasingly difficult for firms to stand apart from one another. Their fees and commissions are generally low, their online tools are plentiful, they provide generous access to low-cost investments, and the firms’ websites and mobile apps are crammed with research reports, charts and videos. Overall, the contest for best online broker is a neck-and-neck horse race.

But zoom in, and you’ll find that each firm has something different to offer—a niche that lets it shine in one way or another. This year, we surveyed eight firms: Ally Invest, Charles Schwab, E*Trade, Fidelity, Firstrade, Merrill Edge, TD Ameritrade and WellsTrade. With commissions about $7 or less at most firms this year, that category carries less weight. Because the firms we surveyed told us that investors increasingly interact with them on smartphones or tablets, we assigned more importance to mobile apps. The biggest, best-known firms, you’ll notice, score better overall in our survey. But almost all of the firms let you trade stocks, exchange-traded funds, mutual funds and individual bonds online, as well as offer some online advisory services.

There are a couple of exceptions: Firstrade’s online robo adviser may launch later this year. And although WellsTrade offers individual bond investing, which we factored into its ranking, trades must be made over the phone. Finally, we approached T. Rowe Price and Vanguard, but both firms declined to participate in our survey this year. Read on to find out which brokers did best­—and why—in each category.

Commissions & fees

Plenty of brokerages offer reasonable fees and commissions, thanks to the decades-long brokerage price wars. The latest salvo from Fidelity eliminated all account fees, including fees to wire money domestically, among others. The final scores in this category, which are based mostly on fees to trade stocks, mutual funds, bonds and options, fall within a narrow range. Five firms earn three stars out of five, but E*Trade, Firstrade and Merrill Edge top the others by super-slim margins. In the end, the best low-cost firm for you may depend on what you invest in, how actively you trade, and in some cases, how much money you have in your account.

Consider stock and ETF commissions, for example. Firstrade leads the way among firms that charge a fixed rate, at $2.95 per trade, followed by Fidelity and Schwab ($4.95) and TD Ameritrade ($6.95). The rest of the firms employ variable pricing that depends on how often you trade or on the size of your average monthly balance. E*Trade’s standard $6.95 commission drops to $4.95 for clients who make 30 or more trades per quarter. Ally Invest shaves a dollar off its fee, to $3.95, for investors with a daily balance of $100,000 or more or who trade at least 30 times per quarter.

At WellsTrade, which is affiliated with Wells Fargo, and Merrill Edge, which is the brokerage arm of Bank of America, you can get a break on stock and ETF commissions if you have money in a checking or savings account at the associated bank. For instance, WellsTrade customers who link their brokerage account with a Portfolio by Wells Fargo checking account can get their stock commissions knocked down to $2.95 from the typical $5.95 charge. At Merrill Edge, the deal is even better: The firm’s standard $6.95 commission falls to $0 for up to 30 stock and ETF trades per month for investors who have $50,000 in combined assets at Merrill and parent company Bank of America and who join the bank’s Preferred Rewards program. Nearly half of all Merrill Edge customers have snagged that bonus, and as a result, “about 80% of trades on our platform are commission-free,” says Merrill Edge’s David Poole.

Fees to trade bonds have become more transparent in recent years. Most of the firms in our survey charge $1 per security to buy and sell corporate and municipal bonds. So if you, say, buy 10 General Electric bonds, you’ll pay a $10 commission at those firms, with a maximum fee of $250. The exceptions are WellsTrade, which charges a flat $50 for bond trades, and Firstrade, which trades bonds on a “net yield” basis. That means the price of the bond includes a mark-up that represents the dealer’s profit. This pricing model is generally more expensive and is certainly less transparent.

Investment choices

Every broker in our survey gives investors access to thousands of stocks, bonds, mutual funds and ETFs. To top the list in this category, firms had to offer not only a wide variety of investments but also deep rosters of ETFs that trade commission-free and no-load or load-waived mutual funds that trade with no transaction fees.

When it comes to the breadth of investment options, Firstrade reigns supreme. That doesn’t mean it offers more of everything compared with other firms in the survey, however. Firstrade’s lineup of no-transaction-fee mutual funds falls several hundred funds short of Schwab, TD Ameritrade and Fidelity, all of which surpass 4,000. But Firstrade wins on the ETF front. It offers 703 ETFs commission-free. The number of ETFs offered with no sales charge at Fidelity, E*Trade, Schwab and TD Ameritrade ranges from 265 to 313. (It’s worth noting that Vanguard now charges nothing to buy and sell 1,800 ETFs on its platform.) Firstrade also offers access to more corporate and municipal bonds than any broker in our survey, with E*Trade close behind.

Fidelity is the best choice for investors who want access to initial public offerings. Over the past two calendar years, Fidelity has made 397 IPOs available to customers, compared with 64 for E*Trade and 48 for TD Ameritrade. In each case, gaining access to shares comes with eligibility requirements. TD Ameritrade customers, for instance, must have $250,000 in assets in their account, place 30 trades per quarter, or be a customer of the firm’s private client services.

Mobile apps

Investors increasingly want to manage their brokerage business on the go. In response, brokers have rolled out mobile apps for smartphones and tablets that allow clients to make trades, read analyst reports on stocks, pay bills, transfer money to outside accounts, and even check on how they are doing with regard to their retirement savings with the touch of a button (or in some cases, after a facial recognition scan).

Fidelity’s mobile app wins the highest marks for checking all the essential boxes. You can buy or sell stocks, ETFs, mutual funds and bonds on Fidelity’s app. No other firm in our survey can say the same. But Fidelity also excels in this category because its app offers virtually all of the other conveniences that brokerage clients now expect, such as mobile bill pay and check deposit, as well as the ability to set up watch lists and view educational videos.

Schwab, TD Ameritrade and E*Trade score well in this category, too. Active traders may appreciate the stock charts available on the mobile apps of E*Trade and TD Ameritrade. The charts can be customized with dozens of indicators used in technical analysis—for example, those based on price momentum. The apps of both E*Trade and TD also allow investors to scan product barcodes and instantly receive stock information on their smartphone about the product’s manufacturer (assuming the company has a publicly traded stock). But TD Ameritrade, unlike Schwab and E*Trade, doesn’t allow mobile users to pay bills from brokerage accounts.

Finally, Merrill Edge’s app is worth a mention. Its intuitive interface, particularly when it comes to stock research, makes it one of the most engaging apps on our list. The app lost a few points, however, because it doesn’t offer bond trading or let you transfer money electronically between other banks. (Transfers between Bank of America and Merrill Edge, however, are instantaneous.)

On the whole, most of the apps we checked out allow investors to easily trade, deposit money and transfer funds. Ally Invest and Firstrade, the laggards in the mobile app category, fell behind because their apps don’t offer mutual fund or bond trading, mobile check deposits, or bill pay. Firstrade’s mobile users can’t make electronic fund transfers in the app, either.

User experience

To evaluate our only truly subjective category, three Kiplinger investing staffers test-drove the brokers’ websites and mobile apps in search of the most in­tuitive and user-friendly platforms for all types of investors. Wells­Trade was unable to provide us with a test account. But among the others, two firms stand out: Merrill Edge and TD Ameritrade.

Merrill’s platform transforms the sometimes-daunting work of analyzing your portfolio and researching stocks into an engaging experience. In “Portfolio Story” mode, the site poses eight questions that investors should ask about their portfolio, from “How is my portfolio performing?” to “What could I potentially earn?” It even examines how your investments rank on certain environmental, social and corporate governance measures. “We wanted Portfolio Story to feel like sitting down with an expert, with users learning what questions they should ask about their portfolio,” says Merrill Edge’s Steve Lucas.

As you work through each step, you’re presented with colorful graphics and digestible data that you can act on. If the tool tells you that a particular stock makes up an outsize portion of your portfolio, for instance, you can sell some shares with just a few clicks. Merrill’s platform uses the same approach for stock research with “Stock Story,” a similarly engaging tool that investors can use to work through four essential questions of stock analysis.

TD Ameritrade scores points for meeting clients where they spend their time—texting on their smartphones or browsing Twitter or Facebook on a computer, tablet or smartphone. Anyone can contact TD through direct messages on Twitter, on Facebook Messenger, through the iPhone Messages app or by talking to their Amazon Alexa–equipped device. “We want the brokerage experience to be part of the existing tapestry of your life,” says TD’s Sunayna Tuteja. For example, you might use Facebook’s messaging feature to ask a broad investing question, get a stock quote, or even buy or sell shares—all without leaving the Facebook app. TD uses artificial intelligence to generate automated responses to your query; if that doesn’t satisfy you, TD will automatically connect you with a live representative.

Most of the firms score well for their easy-to-navigate platforms. Both E*Trade and Fidelity lose points for their sprawling and sometimes lumbering websites. We found inconsistencies, for example, in the way the trade window pops up on different pages on Fidelity’s site and the way graphics show up (or don’t) on E*Trade’s site.

Ally Invest’s platform is almost too basic, with what seems like acres of white space that makes the site feel sparse. And although Firstrade’s website is zippy when it comes to loading pages, its retirement-and-planning section isn’t as robust as others. And the site offers limited research on stocks, funds and bonds.

Tools

Are you on track to retire when you want? Are you getting the steady payments you need from your income portfolio? Ideally, brokerages should make it easy to find promising investments, but they should also provide you with the tools to help with life’s other financial issues.

TD Ameritrade distinguishes itself with its commitment to investor education. The website’s education center is a treasure trove of short explanatory videos on everything from the basics of money market accounts to the ins and outs of cryptocurrency. Longer and more detailed online courses are also available, with titles such as “Trading Options” and “Fundamental Analysis.” The firm held nearly 6,000 webinars on online-trading education in 2017 alone. TD is one of two brokers, along with Fidelity, to offer some form of virtual trading. Fidelity allows users to see how a hypothetical trade might affect their portfolio’s asset allocation, among other things. TD’s version is available on its downloadable trading software and lets investors practice trading with virtual money on the platform before diving in with the real thing.

Other standouts at TD include a tool that breaks down the fees you pay in your 401(k) account and another that charts your portfolio’s expected dividends for the next 12 months. Merrill Edge and E*Trade offer tools that track future dividend payouts, too.

Kudos go to Merrill Edge and Schwab in this category for an abundance of offerings. Calculators abound in Merrill’s toolbox. Retirement planners, for example, can get help figuring out annuity payouts, 401(k) contributions, Roth IRA conversions and estimated required minimum distributions in retirement. Schwab stands out for its robust collection of investing screens for stocks, options, ETFs and mutual funds. Users can search for investments based on their own criteria, select from the firm’s list of predefined strategies, or pick stocks from rosters from CFRA and S&P Capital IQ, including CFRA’s recommended “Five-Star” stocks and those screened for exceptional earnings growth.

Research

These days, investors don’t have to look very hard to find basic information about stocks and mutual funds online. Brokers that score well in this category go the extra mile to keep their clients informed, offering investment information that goes beyond summaries and snapshots.

With the exception of Firstrade, every broker on our list provides some form of bond market commentary or analysis. But research on individual stocks, mutual funds and ETFs varies from broker to broker. Fidelity earns high marks for the range of research available on its site. The firm boasts more independent sources of investment research than any other broker in our survey, and indeed, its stock pages are packed with reports from the likes of Thomson Reuters and Zacks Investment Research. But much of Fidelity’s research is quantitatively focused and lacks in-depth analysis of individual stocks, mutual funds or ETFs. Fidelity lost points for that, but the sheer number of sources it offers, combined with the mix of broad stock and bond market commentary, lifted it to the top in this category.

TD Ameritrade and Merrill Edge end up in a virtual tie with Fidelity for research, with Schwab posting strong results, too. Each provides individual stock reports from investment research firm CFRA. TD Ameritrade and Merrill also offer breakdowns of individual funds and ETFs by Morningstar analysts. All three include input from analysts at major financial institutions. Merrill Edge provides reports from Bank of America Merrill Lynch; TD Ameritrade and Schwab (as well as E*Trade and WellsTrade) feature individual stock reports from analysts at investment bank Credit Suisse. Fidelity, Firstrade and Ally Invest lack research from a big bank.

Advisory services

All of the brokers in our survey except Firstrade offer clients some level of financial guidance, from computer-generated robo advice to access to ded­icated financial planners. Depending on the size of your account, you can get help with calibrating your investment mix, creating a retirement plan or even doing some estate planning.

Schwab’s advisory service stands out for the breadth, quality and price of its offerings. Schwab’s robo adviser, Intelligent Portfolios, does not charge an asset-management fee, which sets it apart from others. You need $5,000 to open an account at Intelligent Portfolios, which is on the high end of minimums (but not the highest). Clients can start investing with just $10 at Fidelity’s “Fidelity Go” digital adviser, for instance. But once funded, Schwab’s Intelligent Portfolios use low-cost ETFs to tailor dozens of portfolios. One caveat: Schwab’s most aggressive Intelligent Portfolio holds 7% in cash. Such a large cash position could hamper returns. But according to The Robo Report, which tracks the performance of digital advisory portfolios, Schwab’s portfolios don’t disappoint. Over the past two years, a moderate-risk portfolio at Schwab that held 62% of assets in stocks, 23% in bonds, 10% in cash and 5% in other assets returned 13.6% annualized through June 30. That beat the nearly 10% return of a hypothetical portfolio of broad-market indexes held in similar proportions over the same period.

TD Ameritrade and Fidelity also post high scores thanks to their digital advisory services. Each keeps investor expenses to a minimum: TD charges 0.30% of assets, and Fidelity charges 0.35%. At Fidelity, that includes the expenses of the portfolios’ underlying investments. Among firms dinged in our survey for high-cost robos: Merrill Edge, which charges a management fee of 0.45% of assets, and WellsTrade, which levies a 0.50% fee (although that is lowered to 0.40% for clients who link a Portfolio by Wells Fargo checking account). But the biggest knock on WellsTrade’s digital offering, Intuitive Investor, is its $10,000 minimum to open an account.

Schwab and TD Ameritrade both offer a hybrid service that combines algorithm-based advice with help from a human adviser for clients with more than $25,000 in assets. Fees on such an account will run you 0.28% of assets at Schwab, and they range from 1.25% to 0.75% at TD Ameritrade. Investors looking for professionally managed accounts will find the most-robust services at Schwab, Fidelity, TD Ameritrade and WellsTrade. Each offers access to specialists in trading, options and estate planning.

Finally, a word about Ally Invest. Its digital advisory service, Advisors Managed Portfolios, charges a 0.30% management fee and requires just $2,500 to get started. But the firm suffers in this category ranking because it doesn’t offer as hearty an array of planning advice (estate planning specialists, for example) as other firms.

Find the right broker for you

All types of investors can find standouts in a niche they care about.

Best for exchange-traded fund investors. Firstrade slays the competition in our survey with its roster of 703 commission-free exchange-traded funds. It includes 15 of the Kiplinger ETF 20, our favorite ETFs, including iShares Core S&P 500 (symbol IVV), Vanguard Dividend Appreciation (VIG) and Pimco Active Bond (BOND). Vanguard, which opted not to participate in our survey, charges nothing to buy or sell 1,800 ETFs on its platform.

Best for mutual fund investors. Fidelity, Schwab and TD Ameritrade all offer customers access to more than 4,000 no-fee mutual funds on their no-transaction-fee networks. That means you pay no sales load and no fee to trade. Schwab, as it has in past years, topped the list, with 4,121 no-fee funds. It’s worth noting that Fidelity has debuted the first index funds with a 0% expense ratio.

Best for bond investors. Firstrade wins by a nose, followed by E*Trade. These firms offer their clients access to tens of thousands of corporate and municipal bonds, leading their peers in both categories.

Best robo adviser services. Schwab’s Intelligent Portfolios wins. The service is free, and it offers more portfolios than any other firm. There are 43 in all, tailored to your goals, tolerance for risk and stage in life. Intelligent Portfolios has a couple of downsides: It requires $5,000 or more to start, and its most aggressive portfolio currently holds a hefty 7% cash position, a potential drag on returns. But according to The Robo Report, which tracks the performance of digital advisory portfolios, Schwab has achieved good results over time.

Best for active traders with high balances. Customers with deep pockets can pay $0 in commissions at Merrill Edge. If you have an active Bank of America checking account and a three-month average balance of $50,000 at Bank of America, Merrill Edge or Merrill Lynch investment accounts (singly or in combination), you can join a rewards program and qualify for no commissions on up to 30 stock and ETF trades per month. Investors with a $100,000 average balance can get 100 free trades every month.

Best for students of investing. E*Trade and TD Ameritrade have made it a priority to teach and inform customers about investing, each in its own way. “Our goal is to make investing easier for people,” says E*Trade’s Rich Messina. E*Trade caters to beginner investors with “All Star” lists of recommended ETFs, stocks and mutual funds, plus ready-to-go ETF portfolios. TD Ameritrade’s website is chock full of short videos and longer online courses for investors of all experience levels. The firm also does a good job of defining and explaining key investing terms on its site, from “earnings per share” to “annual dividend yield.”

Update: Since our story went to press, Firstrade announced it would offer free online trading for stocks, ETFs, options and mutual funds (down from $2.95 per trade). Also, Ally Invest announced it would offer more than 100 exchange-traded funds commission-free (in other words, there is no sales charge to buy or sell shares) to customers on its online trading platform. (Previously, all ETFs purchased on the Ally Invest platform incurred a $4.95 commission; $3.95 for active traders or customers with high balance.)

With additional reporting by Kyle Woodley

Some investors have given up on actively managed stock funds in recent years, instead turning to dirt-cheap index funds that passively track a benchmark. Index funds can get the job done. But the record of Fidelity's stock mutual funds makes a strong case that you should invest at least a portion of your money in some of its superior active funds.

Gun-slinging Fidelity managers including Peter Lynch dominated the investment world in the 1980s and 1990s. Those days are long gone, but Fidelity still employs dozens of first-class managers and analysts. Meanwhile, many expense ratios are relatively low compared to other actively managed funds. Yes, some of Fidelity's funds are mediocre — in my view, Fidelity simply has too many options. But many are superb. Managers such as Will Danoff, Joel Tillinghast and Steven Wymer have clobbered the market indexes for a decade or longer.

Here are five of the best Fidelity stock funds you can own right now.

Data is as of March 20, 2018. Yields represent the trailing 12-month yield, which is a standard measure for equity funds. Click on ticker-symbol links in each slide for current share prices and more.

• Market value: $129.6 billion
• Dividend yield: 0.1%
• Expenses: 0.74%
• Fidelity Contrafund (FCNTX, $129.17) doesn’t boast the official title of Fidelity flagship, but it might as well. With nearly $130 billion under management, Contrafund is one of the industry’s largest actively managed funds — and one of its best.

Contrafund invests mainly in large, rapidly growing companies. Technology makes up 35% of assets. Top holdings include Facebook (FB), Amazon (AMZN), Alphabet (GOOGL) and Microsoft (MSFT). Manager Will Danoff is often one of the biggest holders of stocks he owns, giving him unrivaled access to senior executives.

He leavens his tech holdings with a nearly 19% stake in financial stocks, including a 5%-plus position in Warren Buffett’s Berkshire Hathaway A shares (BRK.A). Consequently, Contrafund is only about 5% more volatile than the S&P and has held up better than the benchmarks in most selloffs, including 2000-02 and 2007-09.

Returns are eye-popping. Danoff took over this fund in September 1990. Since then, Contrafund returned an annualized 13.5% — an average of 3.1 percentage points per year better than the Standard & Poor’s 500-stock index. And there’s no sign that Danoff is losing his touch. Over the past five years, Contrafund returned an annualized 16.4% — an average of 2.3 percentage points better than the S&P. Annual expenses are 0.74%.

• Market value: $38.3 billion
• Dividend yield: 1.4%
• Expenses: 0.68%

Fund analysts like me used to quiz Joel Tillinghast, the legendary manager of Fidelity Low-Priced Stock (FLPSX, $55.18). We’d ask him to talk about, say, the 901st or 902nd largest holding in his sprawling $38 billion fund. Without notes, Tillinghast always aced the quiz and spoke in great detail about the stock.

Not only does Tillinghast have an encyclopedic memory, but he’s a terrific investor too. Since 1989, the fund returned an annualized 13.8% — an average of 2.3 percentage points better than the Russell Mid Cap Value index to which it most closely correlates. Over the past three years, the fund beat the benchmark by an average of about 1 percentage point a year.

Tillinghast does especially well in lousy markets. The fund has been about 10% less volatile than the Russell index over the past three years.

The fund famously limits itself almost entirely to buying stocks trading for $35 or less per share — a restriction I’ve never understood, but clearly it works for Tillinghast. Most of his stocks are midcaps, but Tillinghast still owns a bunch of small-cap stocks, as well as few large-caps. He also currently has about 40% of the fund in foreign stocks.

• Market value: $457.3 million
• Dividend yield: 0.1%
• Expenses: 1.11%
• Fidelity Event Driven Opportunities (FARNX, $14.43) invests in small and midsize companies going through a transition, such as a corporate reorganization, deletion from an index or a management shakeup. These companies are harder to analyze than most other companies, which keeps many investors away.

However, fund manager Arvind Navaratnam says that makes it easier to find “mispriced” or undervalued companies. At the moment, top holdings indicate that Washington, D.C.-focused real estate play JBG Smith Properties (JBGS) and Madison Square Garden (MSG) are among those potential opportunities.

Returns for the nearly five-year-old fund have been superb. It has outpointed the Russell 2000 index of small companies in every year but one, including 2018 so far.

By Fidelity standards, the fund is tiny with just $457 million in assets. Navaratnam likes to trade — turnover last year was 117%. Annual expenses are 1.11%. The fund is just about as volatile as the Russell 2000, but small stocks are typically volatile. The Russell is 40% more volatile than the S&P.

Jim Lowell, editor of the Fidelity Investor newsletter, sees this eclectic fund as a perfect antidote to the billions of dollars in “unthinking money flooding into” index funds. “When that tide turns, investors who are mistaking low cost for low risk will pay the heftiest price.” Funds like this one, he predicts, will shine.

• Market value: $2.6 billion
• Dividend yield: 0.6%
• Expenses: 1.03%

Like so many Fidelity managers, Fidelity International Growth (FIGFX, $13.88) manager Jed Weiss focuses on large, growth companies — that is, companies whose earnings and sales are rising rapidly. He’s willing to buy those stocks even though they typically trade at relatively high multiples of earnings and revenue.

FIGFX’s returns have been solid, and Weiss keeps risk comfortably low. During the past five years, the fund returned an annualized 8.1% — an average of 2 percentage points per year better than the MSCI All-Country World Index ex-U.S. What’s more, the fund lagged the index in only two of the past 10 years. Over the past three and five years, the fund has been about 10% less volatile than the MSCI index.

Weiss is patient. Once he buys a stock he holds it, on average, about four years. Biggest holdings include Swiss-based food giant Nestlé (NSRGY), Australian biopharmaceutical firm CSL and German software company SAP SE (SAP). Weiss casts a wide net. Indeed, 18% of the fund’s assets are currently in U.S. stocks – an usually big American stake for a foreign stock fund. Another 8% is in emerging markets.

• Market value: $6.9 billion
• Dividend yield: 0.2%
• Expenses: 0.74%

Health care has long been my favorite sector. Lowell, the Fidelity Investor editor, shares my enthusiasm, and offers some data points to back up our case.

Over the next 30 years, world population is expected to grow about 25%. But the population of those 65 and older is predicted to surge 125%. Meanwhile, new treatments for diseases are being invented at a rapid pace. And demand for better medical treatment is growing in emerging markets, as well as developed countries.

Manager Ed Yoon has run Fidelity Select Health Care (FSPHX, $241.39) since late 2008, and since then his fund has topped the average health care fund in every year but one. Over the past five years, the fund returned an annualized 19.2% — an average of 2.2 percentage points better than the average health care fund.

The fund takes a broad approach. Biotechnology is about one-third of the fund. Medical equipment is 23% and pharmaceuticals are 15%.

The only big negative: volatility. The fund has been less volatile than the average health sector fund over the past three and five years. But it has been about 50% more volatile than the S&P over those stretches. So, own this fund in small doses.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

Every April, the investment team at Fidelity holds an internal stock-picking contest. On the appointed day, after the market closes, the team gathers on the 14th floor of the firm’s Summer Street offices in Boston, and 40-odd portfolio managers each pitch one stock (some via prerecorded videos or teleconference from Hong Kong, London or Tokyo) to some 120 research analysts—a departure from the usual protocol. Each manager gets just 60 seconds to present, and then the analysts, traders and fund managers vote on the best pitch. “It gets fiercely competitive,” says Brian Hogan, head of the stock and high-yield-debt divisions at Fidelity and emcee of the annual event.

The stakes aren’t high, although there’s some gentle heckling from peers. The most persuasive pitch wins dinner for four on the company’s dime. So does the best-performing stock after one year. But there is a penalty for losing. The pickers of the four worst-performing stocks over the 12-month stretch must each donate $500 to the winner’s favorite charity. That keeps the picks within the realm of the reasonable. “In these contests, if there’s no risk, the managers will go for the highfliers,” says Tim Cohen, who leads the firm’s global research team.

The stock-picking challenge offers a telling glimpse into Fidelity’s mutual fund business. For starters, it’s collegial and spirited. “It’s fun, even though we give each other a hard time,” says Jed Weiss, manager of the International Growth fund. It’s also a teaching opportunity, and Fidelity is big on those. Many managers and analysts take notes during the pitches. New hires—analysts scheduled to start the following August—sit in on the contest as an initiation of sorts. “It’s a room full of really smart people, and they’re all trying really hard,” Weiss says. Most important, it’s all about individual stocks. For even as index funds win all the attention these days, these guys and gals are, at heart, stock pickers. They’re passionate about it. Many have been playing the market since they were kids.

Fidelity is, after all, home to one of the best stock pickers of all time: Peter Lynch. The minute-long pitch is a bit of an homage to him. As Fidelity Magellan’s manager in the 1980s, Lynch would listen to anyone with an idea, says Joel Tillinghast, manager of Fidelity Low-Priced Stock. But “you were dead after 60 seconds” if he decided your idea was a dud.

Lynch stepped down ages ago, but others have stepped up. Will Danoff, at Fidelity Contrafund, and Tillinghast, to name two, have enabled many parents to cover college tuition bills and retire afterward with the earnings from successful funds. But fund managers aren’t the rock stars they used to be, and even in a bull market, fund investing hardly captivates the masses.

Indeed, over the 10 years that Fidelity has run these contests, much has changed in the fund industry. First came the financial crisis, ushering in a deep-seated trepidation about the stock market. Then came the rising popularity of indexing and low-cost exchange-traded funds. These trends have been a drain on assets in actively managed funds. The next bear market looms, which will crimp business as spooked investors pull out of the market. Fidelity, still the big kahuna in actively managed funds, is coping with this change by branching further into other financial services. But when it comes to the fund business, it stands by its stock-picking roots. Can it win over investors to active funds again?

A Family Business

Fidelity’s long history hangs in the balance. The firm started with just one fund. The late Edward C. Johnson II (Mr. Johnson, to most employees) founded the advisory business in 1946 after taking over the flagship Fidelity fund in 1943. Today the company has 479 mutual funds, 23 exchange-traded funds and, including money market funds, $2.4 trillion in assets under management. It has grown into a financial-services behemoth that aims to meet every imaginable customer need. From its brokerage to its advisory services, which range from robo advice to white-glove amenities, the firm serves individual investors as well as institutional ones—the latter with thriving custodial and trading businesses and workplace retirement savings plans, among other things.

Despite a sprawling footprint, Fidelity is still a privately held family business. Abigail Johnson, a granddaughter of the founder, took over as chief executive from her father, Ned Johnson, in 2014. The family still controls 49% of the firm; Fidelity employees hold the remaining 51%.

Now the mutual fund business that put Fidelity on the map faces the challenge of a lifetime. Since the financial crisis, investors have pulled money out of actively managed funds and poured it into index funds (see The Perils of Investing in Index Funds). Ten years ago, Fidelity, which has offices all over the world, was the biggest fund firm in the land, as measured by mutual fund assets. Now Vanguard holds the top spot, thanks to its many popular index funds, and Fidelity ranks number two.

The firm has weathered bad stretches before. Between January 1973 and October 1974, when the stock market cratered 48%, Fidelity’s assets shrank by one-third. That’s when the firm decided to sell its funds directly to investors via a toll-free telephone number—the first fund company to do so—eschewing brokers and hefty sales fees. Today, Fidelity has a renewed focus on innovation. The personal investing side of the business is organized into agile squads, tasked with solving big-picture problems and given free rein to, for example, come up with a better active-trader platform or figure out the next iteration of Fidelity Go, the firm’s robo-advisory service.

The biggest thorn in Fidelity’s side has been the average active fund’s inability to beat its benchmark index consistently. Over the past 10 years through 2017, only nine of Fidelity’s 28 no-load, large-company stock funds outperformed Standard & Poor’s 500-stock index on an annualized basis. That’s on par with the rest of the industry. “I won’t sugarcoat it. Most managers don’t outperform their benchmarks,” says Sonu Kalra, manager of Fidelity Blue Chip Growth. “We need to do a better job.”

Some Fidelity managers have beaten the indexes over the long haul. Hogan calls them the “hall of famers.” Many have been at their posts for decades, including Tillinghast, Danoff and Steven Wymer, of Fidelity Growth Company. On the bond side there’s Ford O’Neil, at Fidelity Total Bond. There’s a new guard, too: Since taking over at Blue Chip Growth in mid 2009, Kalra has beaten the index by an average of 3.3 percentage points per year.

Like many of the fund managers at Fidelity, Kalra is a lifer. He joined Fidelity after business school in 1998 as an analyst and worked his way up. That’s the Fidelity way. The firm prefers to groom its managers, not transplant them from elsewhere, oftentimes breeding a fierce allegiance to the firm. “I’m living the dream,” says John Carlson, manager of Fidelity New Markets Income, an emerging-markets bond fund. Carlson isn’t a lifer—he’s a midlife hire—but he talks like one. He has run New Markets Income for 20 years. “I intend to be here a long time,” says the 67-year-old, who looks as if he stopped aging a decade ago.

New hires typically start as analysts. They learn by doing, getting to know companies in an industry or two and pitching their best ideas to fund managers. Good analysts move up to run sector funds. The next step is to take on a diversified stock fund. Ramona Persaud spent just six months as an analyst before taking over Fidelity Select Construction and Housing in 2004. Persaud is a rare woman among the manager ranks. She now has a hand in six diversified stock funds and focuses on dividend stocks.

Despite the sprawl of the Summer Street building, one of two that Fidelity owns in Boston, the U.S. stock team sits in close quarters along a stretch of the 11th floor, in a maze of cubicles and glass offices. It’s communal and collegial, as is the custom-designed space in Merrimack, N.H., where most of the firm’s bond fund managers and analysts work. Fidelity has 84 bond funds—a fraction of its 395 stock portfolios. Compared with the Boston headquarters, the culture in Merrimack is a touch more casual and outdoorsy. Bears, as in the actual furry animals, have been sighted on campus.

Skin in the Game

Just as with the stock-picking challenge, Fidelity’s fund managers earn bonuses (worth well more than a dinner out) if their funds outperform their benchmarks and similar funds. Many managers have invested their own money in the funds they run, so when the funds underperform, the managers feel it, too. Says John Roth, whose New Millennium fund has lagged the S&P 500 for most of the past four years: “It’s not very enjoyable. You feel a lot of pressure.”

Yet Fidelity fund managers are encouraged to take risks. “You can be wrong a lot and still outperform your benchmark,” says Hogan. “You can only lose 100% of a stock. It’s painful, and I’ve had it happen to me,” he adds. “But you can make two, three, four, seven, eight or even 12 times your money on a winner.”

Managers are free to develop their own investment philosophy and manage money the way they want to—as long as they stick to their methodology consistently (there is oversight from higher-ups). Tillinghast, for instance, likes small companies and appreciates a good value. Weiss, of International Growth, favors firms that can maintain demand for their product without slashing prices even during tough times. All of the managers are stock pickers who focus on fundamentals. They fill their portfolios one stock at a time by doing nitty-gritty research, company by company.

The philosophy dates back to Fidelity’s early days. In The Go-Go Years, a book about 1960s Wall Street, author John Brooks writes that Mr. Johnson would tell his fund managers, “Here’s your rope. Go ahead and hang yourself with it.” The quote illustrates how Fidelity to this day refuses to be defined by a single investment process. It’s not a growth-oriented shop or a value-seeking shop. It’s just after good stocks, whatever their stripe.

Good ideas can find an ear at Fidelity. In the late 1980s, Tillinghast was an analyst covering tobacco and personal-care-products firms when Fidelity asked for pitches for new funds. He came up with Low-Priced Stock. The idea was to find good values in small companies and out-of-favor larger firms. “I’d seen Peter [Lynch] make a lot of money on big companies trading at small-market-cap prices,” says Tillinghast. Since Low-Priced Stock launched in 1989, it has returned 14.1% annualized, which beat the S&P 500 by an average of four percentage points per year.

Tillinghast learned from Lynch. Now he mentors others. “We say to everyone here, ‘You have to teach and you have to learn,’ ” says Hogan. Those who teach but don’t learn may decide Fidelity isn’t the place to be and leave. If someone learns but never teaches, the company may say, “We’re not sure how long we want you here.”

A slew of high-profile departures have taken place recently. Wunderkind Chuck Myers, of Small Cap Discovery, retired in December. So did Jim Morrow, manager of Equity-Income. It was widely reported that Gavin Baker, of OTC fund, was fired for sexual harassment. A spokesman for Baker denies the allegations, and the official line from Fidelity is that he left to pursue other opportunities. But change is endemic to Fidelity. Although many will spend whole careers at the firm, people move around a lot and always have—Abby Johnson worked in nearly every division before she succeeded her father.

Amid changes within the firm and in the industry, Fidelity’s stock team tries to stay focused. Hogan says Fidelity is “a good house in a bad neighborhood.” But, he adds, “the neighborhood is getting better.” Indeed, things look brighter for actively managed funds. At Fidelity, more money poured into fund coffers in 2017 than was pulled out for the first time since 2014. And most of Fidelity’s large-company stock funds trounced the S&P 500 in 2017. Growth Company beat the index by nearly 15 percentage points, Blue Chip Growth by 14 points and Contrafund by 10 percentage points.

Success looks easy in a powerful bull market. Fidelity’s managers will also have to prove their mettle in the next market correction or even a bear market. Blue Chip Growth manager Kalra welcomes the challenge. “When there is fear in the market,” he says, “it’s usually a good time to be picking stocks.”

What Fidelity Likes Now

Fidelity’s army of analysts and fund managers scour every market sector and corner of the globe for good ideas. After a strong 2017, international stocks will continue to outpace the U.S. market, says Brian Hogan, who leads Fidelity’s stock team. “Our sense is this will be a four- or five-year phenomenon,” he says. Jed Weiss, who runs Fidelity International Growth (symbol FIGFX), focuses on firms that have long-term-growth prospects and solid standing in their industry. ASML Holding, a Dutch company, is a leader in photolithography tools, which are crucial to making smaller, faster, next-generation semiconductor chips. The stock is a top-10 holding in the fund. (Funds in boldface are members of the Kiplinger 25, the list of our favorite no-load funds.)

Weiss will travel to Japan soon to scout for bargains—a challenge, given the 26% rally in Japanese shares in 2017. He currently favors small and midsize companies there. Some of the stocks Weiss finds may wind up in another fund he manages, Fidelity International Small Cap Opportunities (FSCOX), which has 35% of its assets invested in Japan. He is also looking for buys in markets where economies that were under pressure are now improving, and he says Brazilian banks are attractive now.

Fidelity New Markets Income (FNMIX) manager John Carlson is “cautiously optimistic” about emerging-markets debt. With interest rates in the U.S. still low, payments aren’t yet onerous (much of the debt is denominated in U.S. dollars), and higher oil prices bode well for commodity-producing economies. Carlson says the portfolio is well positioned to deliver current income of 5.5% to 6%. The fund returned 10.2% in 2017.

On the home front, Sonu Kalra, who runs Fidelity Blue Chip Growth (FBGRX), still sees value in big-name tech stocks, including Amazon.com and Apple. Kalra looks out three, five and sometimes even 10 years. He has increased the fund’s stakes in Broadcom and Qualcomm based on the promise of 5G, the upcoming wireless broadband technology.

John Roth, who manages Fidelity New Millennium (FMILX), is defensive. He favors regional banks, including PNC Financial Services and US Bancorp, which will benefit from tax reform and a more benign regulatory environment. He likes retailers that are less vulnerable to competition from Amazon.com, including Tiffany on the high end and Dollar General on the low end. Roth, a contrarian at times, shed shares of tech companies last year, but he sees opportunity in shares of insurer Chubb, which is under pressure after a devastating hurricane season.

However you invest, it’s a great time to shop for an online broker. Firms have been trimming commissions, expanding their online tools, offering more transaction-free mutual funds and enhancing their mobile apps. Eager to win your business, brokers are also offering signing bonuses, such as a $1,000 bounty from TD Ameritrade, and up to 500 free trades for two years at Fidelity Investments and Charles Schwab.

To help you choose the best broker, we surveyed seven major firms: Ally Invest (which acquired TradeKing last year), E*Trade Financial, Fidelity, Merrill Edge, Schwab, TD Ameritrade and Vanguard. Why this lineup? To be included in our survey, brokers had to offer online trading of stocks, exchange-traded funds, mutual funds and individual bonds, as well as provide some retirement-planning tools and advisory services. We excluded brokers that primarily focus on active traders—those catering to day traders, for instance. T. Rowe Price declined to participate. Scottrade wasn’t included because TD Ameritrade recently purchased the firm (and is in the process of absorbing Scottrade’s clients).

And the winners are…

In a tight contest, Fidelity and Merrill Edge tie for first place, squeaking past Schwab. All three firms rank high in key categories, such as commissions and fees, tools, and customer service. But we found some important differences. For example, Merrill ranks best for research, but Fidelity and Schwab offer many more mutual funds that can be bought without transaction fees, along with a larger selection of corporate and municipal bonds. Fidelity and Schwab also rack up points for their wide range of advisory and financial-planning services.

Of course, the right broker for you may not be one of our top-ranked firms. If you like to trade stocks, particularly on a mobile device, E*Trade may be your best bet, thanks to excellent screening tools and charts, as well as comprehensive information about individual stocks, all available on its app. TD Ameritrade ranks high for its research offerings and ample lineup of no-transaction-fee (NTF) mutual funds and ETFs, many of which can be purchased without trading commissions. Ally may appeal to young investors who want a low-cost, no-frills broker joined to an online bank with competitive interest rates on certificates of deposit and savings accounts.

Vanguard falls behind the leaders in almost every category, losing points for its bare-bones website, its basic mobile app and its lack of stock research. But these drawbacks don’t make the fund giant a bad choice for investors who buy and hold for the long term. Vanguard brokerage customers don’t pay a penny in commissions to access the firm’s low-cost mutual funds and ETFs, many of which can save you money over the long run compared with funds that have higher ongoing fees.

For a deeper dive, check out the results in each category below. To find the best broker for you, see the box on the facing page, where we name the winners for several types of investors.

Commissions and fees

Fidelity launched a price war early this year when it cut its stock commissions to $4.95 per trade. The move prompted Schwab to match Fidelity’s rate, and it led other brokers, such as E*Trade and TD Ameritrade, to lower commissions, too. The upshot: You shouldn’t pay more than a few bucks to trade stocks or ETFs, and you can get lower prices and even free trades at some brokers. E*Trade, for instance, trims its commission from $6.95 to $4.95 for clients who make at least 30 trades a quarter.

Merrill’s base rate of $6.95 for stock trades looks pricey at first glance. But customers who have at least $50,000 in combined balances at the brokerage firm and Bank of America (Merrill’s parent) qualify for up to 30 free trades a month, and they also receive such perks as a cash-back bonus on credit cards and discounted rates on auto loans. Stash at least $100,000 with Merrill and BofA (combined) and you’ll earn up to 100 free trades per month and higher levels of “preferred rewards.” “Most of our clients aren’t paying for stock trades,” says David Poole, head of Merrill Edge Advisory & Client Services.

At Schwab, customers with a gripe can get a refund on all fees, if they ask. The firm recently expanded its “satisfaction guarantee” to cover all commissions, advisory fees and other charges. “If a client does any business with us and isn’t satisfied, we’ll refund the fees, no questions asked,” says Terri Kallsen, head of Schwab Investor Services.

Ally’s base rate of $4.95 lands it on the leader board for stock trades, and the firm trims that rate to $3.95 for clients who make at least 30 trades a quarter. Ally also charges a relatively low $9.95 to buy or sell mutual funds. Those fees are much less than what Schwab levies for trading funds outside its NTF network ($76 to buy but no charge to sell). Fidelity and TD Ameritrade both charge about $50 to buy mutual funds outside their NTF networks (no charge to sell at Fidelity), while E*Trade, Merrill and Vanguard levy $20 per transaction. But Ally doesn’t offer any NTF mutual funds or ETFs—a big drawback that could cost you quite a bit in fees if you buy and sell a lot of funds. “No-fee funds are something we’re starting to look at,” says Rich Hagen, president of Ally Invest.

Unlike the other brokers, Vanguard’s commission structure doesn’t encourage trading. The firm charges $7 for the first 25 stock trades per calendar year and a steep $20 after that. Transaction-fee funds also cost $20 per trade. But customers can load up on all Vanguard mutual funds and ETFs without having to pay sales charges—a good deal if you invest mainly in low-cost index funds. One small nuisance: Customers must hold at least $10,000 in Vanguard mutual funds or ETFs or sign up for electronic statements to avoid a $20 annual account “service” fee.

Investment choices

Aside from Ally, every broker surveyed here offers thousands of funds without a transaction fee. Schwab tops the list with 3,976 no-transaction-fee funds, all with minimum investments below $50,000 (our cutoff to be included in this category). Schwab also offers 231 commission-free ETFs, the most of any broker in our survey. The lineup includes many low-fee index funds sponsored by Schwab, along with ETFs from such firms as Guggenheim, PowerShares, State Street and Wisdom­Tree. Schwab’s vast number of no-fee mutual funds and ETFs vaulted it to first place in this category.

E*Trade also scores high for its substantial roster of no-fee funds (3,887), as does TD Ameritrade (3,749). Both firms also offer more than 100 commission-free ETFs. But TD’s lineup includes more low-cost funds from sponsors such as iShares and Vanguard; E*Trade emphasizes higher-fee ETFs in niche investment areas, such as Global X S&P 500 Catholic Values (CATH)and WisdomTree Managed Futures Strategy (WDTI).

Fidelity ranks competitively, too, with 3,532 NTF mutual funds and 85 commission-free ETFs, including dozens of iShares ETFs with low-to-minuscule expense ratios. Investors at Merrill have fewer choices in NTF funds (2,251). Vanguard also looks weak in this arena, with just 2,531 NTF mutual funds, although that includes all of the firm’s proprietary funds (whose expense ratios undercut those of most of its rivals). The firm also offers its 70 Vanguard ETFs without commissions.

Beyond funds and ETFs, each broker sells individual bonds, including Treasuries, municipal and corporate issues, and high-yield “junk” bonds. TD’s lineup of more than 28,000 corporate IOUs exceeds the others’ offerings. But if you want bonds issued by giants such as AT&T or General Electric, you can find them anywhere.

One note: Bonds don’t trade on an open market, and prices tend to be opaque. Most brokerage firms charge commissions of $1 per bond with a $1,000 face value, passing on the same prices that they get when they acquire the bonds from other dealers (which include the dealer’s markup). Merrill and TD, however, sell bonds on a “net yield” basis, with the broker’s profit built into the prices. Some studies have found that customers tend to pay more for these net-yield bonds than they would with a flat-rate commission.

Research

With commissions at rock bottom these days, a big distinguishing feature among brokers is the breadth and quality of research they furnish. Every firm provides snapshot reports on stocks, including basic data such as revenues and earnings. Most brokers also offer reports on bonds from ratings agencies, such as Moody’s and Standard & Poor’s. But a few firms go further, supplying in-depth market analysis and research on companies, along with all sorts of investing ideas.

Scoring best in this category, largely for its stock research, is Merrill Edge. Customers can see detailed research on more than 1,300 companies covered by Bank of America Merrill Lynch analysts, including missives on giants such as Microsoft and Wal-Mart Stores, as well as a slew of smaller companies, real estate investment trusts and master limited partnerships. Merrill also includes more than a dozen lists of recommended stocks, including “Warren Buffett Stocks” and “Earnings Turnarounds.” And the firm produces pieces on big themes, such as a recent report titled “Uberfication: Global Sharing Economy Primer Picks.”

Schwab, E*Trade and TD Ameritrade earn high scores, too, supplying stock research from well-established firms such as Credit Suisse and CFRA. Schwab throws in 1,600 Morningstar stock reports, along with its own ratings, which gives its score in this category a slight bump.

For avid stock traders, though, E*Trade may be best. The firm jams its site with analyst recommendations, charts, data and investing ideas, including dozens of stock screens. Customers at TD Ameritrade and Schwab can find plenty of investing ideas, too, such as Credit Suisse’s U.S. stock “focus list,” available on both sites. If you want in-depth mutual fund research, though, you won’t find it on any broker’s site.

The other three outfits—Ally, Fidelity and Vanguard—don’t score well in this area. At Ally, CFRA provides the only in-depth stock research. Fidelity lists more than a dozen research reports for big companies, such as Apple. But most of them are just technical analysis—evaluating stocks based on trading patterns or other data—and lack detail about corporate business developments and industry trends.

Tools

Online calculators and tools can help you track your portfolio’s performance, screen for funds, plan for retirement and generally keep tabs on your financial life. Some sites get an edge in this category by supplying handier and more comprehensive tools than others.

Merrill earns the highest score, with Fidelity coming in a close second. Along with top-notch screeners for funds and stocks, Merrill provides Morningstar’s powerful Portfolio X-Ray, a tool that can dig into your fund holdings and individual stocks and, among other things, analyze areas of overlap and market factors influencing your returns. Most of these tools are easy to find, too, by using the drop-down menus on Merrill’s home page.

Finding tools on Fidelity’s site takes more poking around. But Fidelity’s portfolio-analysis tools are robust and easy to use, and you can configure them in multiple ways (to track your performance against not just traditional indexes but also blended market benchmarks, for example). Fidelity also provides top-notch budgeting and retirement-planning tools. And you can see a comprehensive picture of all your finances, including accounts held at other firms, your mortgage balance and your home’s market value.

As you might expect, E*Trade excels with tools for stocks, ETFs and options. TD Ameritrade offers a “Premier List” of top-rated mutual funds selected by Morningstar (all available without transaction fees). Schwab makes it easy to find tools, too. We especially like the firm’s preferred-stock screener, which includes credit ratings from Moody’s and S&P Capital IQ, as well as key data points, such as dividend yields and upcoming “call” dates, when issuers may redeem the securities.

Vanguard’s tools focus on nuts-and-bolts planning—things such as setting up an investment mix and creating a retirement plan. Customers won’t find targeted stock screens, though, and can only import outside account data if they’re customers of Vanguard’s advisory service. Ally furnishes a few stock screeners but doesn’t offer retirement-planning tools. Ally says it plans to roll out more screeners and tools over the next year.

Ease of use

Finding what you want on a broker’s site can feel like wandering through a maze of charts, data and jargon-filled reports.

Overall, Fidelity’s relatively intuitive site helps you avoid information overload. The firm recently redesigned its ETF research center, added voice recognition at its call centers to identify customers without a passcode, and enhanced its “quick quote bar” to facilitate trading. Fidelity also wins points for its 2% cash-back Visa card—with direct deposit of cash rebates into brokerage accounts—along with services such as FidSafe, a free online vault where customers can store valuable documents. (Merrill is the only other firm that offers a similar safe-like service.)

With access to Bank of America offices, Merrill provides the most branches (4,600) for its clients to meet with a financial adviser. Customers can easily transfer money to Bank of America with one-click convenience, and they can see all of their savings, checking and investment accounts at both the bank’s and the brokerage’s websites. Schwab also blends brokerage and banking services well, pro­viding high-yield checking and other bank services, as well as mortgages through Quicken Loans. One drawback: Schwab’s American Express cash-back card rebates just 1.5% of the amount of your purchases, and fewer merchants accept Amex.

Also competitive in this category is TD Ameritrade. The firm is ex­panding its branch network from about 100 locations to more than 400 (including Scottrade’s shops). New features on TD’s site include a revamped ETF research center and an upgraded “dock” with news from Yahoo Finance. E*Trade’s site, packed with technical tools, news and data, may not be as easy to navigate for novices. Cust­omers can do some banking through E*Trade, but the firm doesn’t provide a cash-back card or services such as a digital vault.

Because they are purely online brokers, Ally and Vanguard aren’t as convenient, losing points for their lack of physical branches. Ally’s cash-back Visa card, which rebates a base rate of 1%, isn’t as competitive as cards from Fidelity or Schwab. Also, Ally’s cash rewards aren’t automatically deposited into a brokerage account, and customers can’t import account data from other firms. Vanguard doesn’t offer a cash-back card or many banking services. Its site lacks real-time streaming quotes and other user-friendly tools to trade stocks and ETFs.

Mobile apps

Brokers’ apps are be­coming handy enough to allow customers to conduct almost all of their business via a mobile device, whether it’s buying stocks, trading options or depositing checks. E*Trade’s app scores best. It includes a full suite of trading features, as well as stock research reports, lists of “all-star” funds and multiple ways to screen for stocks, ETFs and funds.

Merrill’s app includes several calculators and tools for college savings and retirement planning, along with research from CFRA and Morningstar. Cust­omers can’t screen for stocks or funds, though. Fidelity and Schwab both win points for their apps’ user-friendliness: Trading, transferring money and depositing checks all work seamlessly. Fidelity customers can screen for ETFs, too, and Schwab supplies useful stock ratings, along with an “Idea Hub” for trading options.

Apps from Ally and TD fall short in one big area: They lack the ability to trade mutual funds. Vanguard’s app doesn’t let you buy and sell non-Vanguard funds—also a drawback. Customers can deposit checks, but they can’t transfer money on Vanguard’s app, limiting its usefulness.

Investment advice

Brokers are so keen to handle your money that most will set up a financial plan and review your portfolio at no charge. They can also manage your investments, for a fee, or help with things such as estate plans and insurance.

Taking the lead in this category are Fidelity, Schwab and Vanguard. Fidelity and Schwab score well for a wide array of planning services and managed accounts, such as a Fidelity portfolio dedicated to indi­vidual municipal bonds and one at Schwab focused on dividend-growth stocks. At Fidelity, fees for separately managed accounts start at 1.20% annually but are reduced by “credits” for some of the costs in the portfolios’ fund holdings. For clients with at least $25,000, Schwab offers tailored portfolios of ETFs, with an annual advisory fee of 0.28% (capped at $900 per quarter for high-value accounts).

Vanguard customers can get into a managed account with a $50,000 minimum investment. Annual fees are 0.30%, no matter what investing strategy you choose. These accounts hold Vanguard ETFs and the Admiral share class of its mutual funds, which charge some of the lowest expense ratios in the industry.

E*Trade, Merrill and TD offer managed portfolios, starting at 0.75% annually at TD, 0.85% at Merrill and 0.90% at E*Trade. All three firms provide plenty of choices, though, such as a “supplemental income” portfolio at TD and an aggressive-growth package at E*Trade.

If you don’t have much to invest, you could opt for a “robo” service, which should cost less and may be just as effective as brokers’ higher-fee accounts. These portfolios of ETFs and mutual funds are automatically adjusted to maintain a fixed mix of stocks and bonds. Investment minimums are as low as $2,500 at Ally but typically start at $5,000, with annual management fees of 0.30% at Ally, E*Trade and TD. Fidelity charges a bit more, 0.35% to 0.40%. But its fees include underlying fund expenses. Vanguard doesn’t offer a robo, but its Personal Advisor service is essentially the same thing. Plus, Vanguard will tailor the investment mix to your specific situation, following a consultation with a Vanguard adviser. (For more on automated investing services, see Robo Advisers Get the Human Touch.)

Schwab offers a similar service, charging a management fee of 0.28% for a personalized portfolio of ETFs, constructed with the help of a client’s dedicated financial adviser. Customers can also opt for Schwab’s Intelligent Portfolios—baskets of ETFs that the firm selects and rebalances without charging a separate management fee. The downside of these portfolios is that even the most aggressive ones—with hefty amounts of stock—hold 6.9% in cash (and much more in conservative portfolios). Maintaining that much cash can drag down returns in a strong market.

At the opposite end of the cost spectrum is Merrill, which charges a 0.45% management fee for its robo service. Merrill says that the accounts aren’t just based on algorithms, however, and that customers “have access to a human being whenever they need help.”

A Broker for Every Investor

Best for mutual fund investors: Schwab. Offering 3,976 funds with no loads, no transaction fees and investment minimums of less than $50,000, Schwab edges the competition. Need some help? Pick from Schwab’s “select list” of 168 no-transaction-fee mutual funds, a roster that includes many solid performers with reasonable expense ratios.

Best for ETF investors: Schwab. The firm’s 231 commission-free exchange-traded funds put it on top in this category. Many of these ETFs have wafer-thin expense ratios, enabling investors to build a low-cost portfolio without paying a penny in trading commissions.

Best for active stock traders: Merrill Edge. Investors can qualify for 30 free trades per month by having at least $50,000 in combined balances at Merrill and parent Bank of America. Maintain at least a $100,000 balance and you get 100 free trades per month. Runner-up: Ally Invest. The firm trims commissions from $4.95 to $3.95 for investors who make at least 30 trades a quarter, with no investment minimums.

Best for investors on the go: E*Trade. Packed with handy features, E*Trade’s app lets you buy or sell stocks, mutual funds and options, as well as run screens, deposit checks and pay bills. Stock research is also available, something most brokers exclude from their apps.

Best for managing cash: Fidelity. Customers can easily pay bills and see a complete picture of their financial life on Fidelity’s site, including mortgages and balances in non-Fidelity accounts. Fidelity’s Visa Rewards card, which pays back 2% on all purchases, beats the cash rebates from cards of most other brokers.

Best for retirees: Vanguard. Low fees throughout its lineup of mutual funds and ETFs make Vanguard a top choice for retirees (or anyone trying to save a few bucks). The firm charges 0.30% a year to manage accounts, one of the lowest fees in the business.

When working with clients to develop their financial plans, integrating 401(k) accounts into an overall retirement strategy is an important part of the process.

For most people, their 401(k) represents their largest source of funds set aside for retirement. Whether deciding how much to contribute, choosing investments within the 401(k), or wondering if it is the best way to save for retirement, here are six tips to get you started.

1. What do I need to think about during enrollment?

Assuming your company offers a retirement plan — 401(k)s and 403bs are most common — your HR department will address enrollment when you are hired. For existing employees, if the company is rolling out a new 401(k) plan, there will typically be a group meeting where HR and a representative from the plan sponsor — Fidelity Net Benefits, Vanguard and Prudential are a few common providers, but there are MANY more — will summarize the plan and lead you through enrollment. In both circumstances, you will typically receive your login credentials for your online investor portal where you can complete your investment choices and set up your contributions. Two things you need to keep in mind during enrollment:

• You must clearly understand the company match. If at all possible, contribute up to the company match to maximize your employer’s contributions.
• If there is no company match, it may be better to focus on personal Roth IRA and IRA contributions before considering your employer retirement plan.

2. Should I choose the Roth or Traditional option?

Though not as common, more employer retirement plans are offering Roth options. Choosing between traditional or Roth to save for retirement is an important decision. You must realize that in a traditional 401(k), you are not getting a tax write-off from your pre-tax contributions: You are getting a tax deferral. You will eventually pay taxes on the money in these accounts funded with pre-tax dollars when you take withdrawals in retirement. It is very important to understand that you will pay tax not only on the pre-tax contributions, but on all the gains as well.

For the Roth option, you pay tax on the dollars going into this account before your contributions are made. In this way they are funded with post-tax dollars, never to be taxed again. The benefit is that your withdrawals in retirement are tax-free for your contributions and your growth. The question to ask is, do you want to pay the taxes now (Roth) or pay taxes during retirement (traditional)? While this topic warrants an entire dedicated post, to be brief, I recommend to my clients that we always maximize Roth and other tax-free options first.

If your plan offers a Roth 401(k) option, it is best to put your contributions here, knowing that this money will be tax-free after you have retired. It also protects your retirement assets from the possibility of income-tax rate increases in the future.

3. How much should I contribute?

There are two sets of guidelines to consider here. There are current IRS contribution limits, and possible additional contribution limits set within your specific company plan. Current IRS contribution limits for employer-sponsored retirement plans in 2017 are as follows: $18,000 for employees under age 50. Those 50 and up are allowed a “catch up provision” giving them an added $6,000 of annual contribution for a total of $24,000 per year. (For more details click here.)

To reiterate a point made above, make it a priority to contribute up to the company match in order to maximize your employer’s contributions to your retirement savings. In addition to contribution limit guidelines, it is also important to consider how much you can afford to contribute based on your monthly budget and cash flow. After contributing up to the match, if you are able to save more for retirement, it is best to look again to your Roth IRA and other tax-free options.

4. How should I invest?

There are many factors here to consider, and there is no “one-size-fits-all” answer. You will need to consider key factors such as your age, risk tolerance, investment time horizon, other retirement assets available to you, fees, taxes, how much you can afford to contribute, etc. Most employer plans will offer some high-level guidance through the plan sponsor to help you decide based on age and risk tolerance. You will also want to be sensitive to the cost and fees incurred with your different investment choices.

Do not be afraid to get on the phone with your plan’s representative to get some help. This is one of the valuable advantages of working with a financial adviser – getting help to identify proper investment strategies specific to your life and your overall retirement preparation.

5. How often should I change my investments?

The majority of employer sponsored retirement plan participants never make changes to their investment choices after the initial plan enrollment, according to studies, including one by the Invesment Company Institute. While this is not a reliable path to retirement success, checking and changing on a daily basis is not wise either. Broad exposure to low-cost index funds and ETFs across multiple asset classes should help most investors weather the ups and downs of the market, however this is not a license to completely ignore your account for years or decades leading up to retirement.

Your risk tolerance, investment time horizon, goals and even the available investments within your plan will change with time. Major life events like marriage and children, buying a home, etc. can all warrant changes to your investment strategy. While seeking financial advice can be very helpful, a general guideline would be:

• Check on your account quarterly.
• Consider making annual adjustments to rebalance your allocations as needed.

What if I change companies?

Job mobility is a modern reality. Gone are the days when people retire from the first company they joined right out of college. While it is possible to roll your funds over to the new employer’s 401(k) plan, I recommend opening a personal IRA to roll these funds into as you move from one employer to the next.

Shifting your retirement funds into personal accounts grants you more control as well as offering you more freedom of choice when it comes to investments. You are no longer limited to the menu of investment choices within your 401(k). It is important to remember that you must roll the 401(k) funds into “like” accounts. Pre-tax 401(k) funds must go into a traditional pre-tax IRA, and Roth 401(k) funds must go into a Roth IRA. It is also important to note that when rolling a Roth 401(k) account over to a personal Roth IRA, you will also need a traditional IRA to complete the transaction. Your employer contributions were likely be pre-tax, while your personal contributions were post-tax, thus requiring both a Roth IRA and a traditional IRA to properly receive the funds.

Again, each of these six points could justify its own independent post, and keep in mind that this is not meant to offer definitive advice on retirement planning nor how to manage your 401(k), as there is no way I can know the financial specifics of anyone reading this. However, I hope you found this general guidance helpful.

When it comes to saving for retirement, start early, be consistent, maximize your Roth options first whenever possible, and do not be afraid to ask for some help.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Fed up with the piddling interest you're earning on bank deposits? You may want to take a look at brokered certificates of deposit.

Brokered CDs are issued by banks and sold through brokerage firms such as Fidelity and Vanguard. Some brokered CDs are currently offering yields roughly 0.3 to 0.5 percentage point above what you’d earn on CDs of the same maturity purchased directly from a bank—without a lot more risk.

"Here's an opportunity to stay safe and earn extra return," says Allan Roth, founder of Wealth Logic, an investment advisory firm in Colorado Springs, Colo.

Like direct CDs, brokered CDs are covered by federal deposit insurance. But they're not completely risk-free. If you need your money before the CD matures, you'll have to sell it in the secondary market, and if interest rates climb, the market value of your CD will fall.

Brokered CDs don't always offer higher yields than direct CDs, but longer-term brokered CDs have become more competitive in the past few years, says Ken Tumin, editor of DepositAccounts.com. And in the past six months or so, he says, some shorter-term brokered CDs have also started offering more generous yields. As interest rates rise, "banks might try to hold off on raising direct CD rates," Tumin says, but because brokered CDs are traded in a secondary market, they "tend to respond quicker" to interest rate changes.

When shopping for brokered CDs, skip the ones that are callable. They may offer slightly higher yields, but they allow the bank to terminate the CD early, meaning you may not enjoy that yield for very long.

Also be wary of CDs with unusually high yields, and work with a brokerage firm you trust. The Financial Industry Regulatory Authority warned last year that some firms were using high-yield CD offers as bait to lure seniors into meetings with salespeople, who would then pitch a high-commission product, such as an equity-indexed annuity.

You can buy brokered CDs as new issues, which are typically sold at par, or in the secondary market, where they may trade at a premium or discount to par. Roth, who started adding brokered CDs to client portfolios about two years ago, says he has been finding the best deals in the secondary market.

Looking at noncallable secondary-market CDs offered by Fidelity in mid May, a Capital One CD maturing in May 2022 offered a yield of 2.53%, compared with 2.35% for the top-yielding five-year direct CD listed on Bankrate.com. A Synchrony Bank brokered CD maturing in April 2027 was yielding 2.88%, while 10-year direct CDs offered top yields of about 2.35% and the 10-year U.S. Treasury yielded 2.41%. (Note, however, that Treasury interest, unlike CD interest, is exempt from state and local income tax.)

Rein in Risk of Rising Rates

Buy only brokered CDs that you intend to hold to maturity. Unlike direct CDs, brokered CDs have no early-withdrawal penalty, and in a pinch, you can sell them on the secondary market. But if rates have climbed, you'll likely receive less than what you paid for it.

To mitigate the risk of rising rates, Roth uses brokered CDs in conjunction with direct CDs that have mild early-withdrawal penalties, such as six months' worth of interest or less. If rates rise, he can break the direct CDs and reinvest at a higher rate.

For savers who are spreading cash among multiple banks to stay below the Federal Deposit Insurance Corp. limit of $250,000 for each type of account you hold at each bank, brokered CDs can make life simpler. You can hold brokered CDs issued by many different banks in one brokerage account. But FDIC coverage on secondary-market brokered CDs has one wrinkle: It only applies to the par value. So if you buy a brokered CD at a premium, that premium amount won’t be FDIC-insured.

If you're not spending the interest from your brokered CDs, you should regularly reinvest it. Unlike direct CDs, brokered CDs don't offer the option of adding the interest back into the principal, so you'll want to redeploy that cash to keep it from building up in a low-yielding brokerage sweep account.

Your debts are under control, your emergency fund is fully funded, and you are maxing out your retirement savings. And, lucky you, you still have $1,000 left over to invest in stocks. There are options.

You could gain instant exposure to shares of hundreds of companies by plowing the money into a low-cost fund that tracks the Standard & Poor’s 500-stock index fund such as the SPDR S&P 500 ETF (symbol SPY). Simple and cheap. Or, you could buy a single share of a high-priced stock like Amazon.com (AMZN) and you might not even have enough left over to cover your $99 Amazon Prime membership fee. But it’s risky putting all of your eggs in one basket. Another approach is to spread the money over several promising low-priced stocks.

The one wrinkle to buying shares of multiple stocks is trading commissions. Even at just $4.95 per online trade at Fidelity or Schwab, investing in 10 different stocks means your $1,000 investment is already down 5%. A workaround: Open a free Robinhood account and make no-commission trades on your smartphone using the brokerage’s app. (There's a monthly fee to upgrade to a Robinhood Gold premium account.) Here are nine good stocks under $20 to consider for your portfolio.

Data is as of May 2, 2017, unless otherwise indicated. Click on ticker-symbol links for current share prices and more.

(Stocks are listed in alphabetical order. Dividend yield is calculated based on the last four quarterly dividend payments. Analyst ratings are per Zacks and Thomson Reuters.)

• Symbol: AMD
• Share price: $10.32
• 52-week range: $3.45 - $15.55

Shares in semiconductor manufacturer Advanced Micro Devices tumbled on May 2, a day after earnings for the first quarter failed to exceed analysts' expectations. That disappointed momentum traders who had bid up AMD nearly fourfold over the past year. But for long-term investors willing to take a risk, this setback affords a chance to bet on AMD's prospects at a considerably lower price level.

"Overall, though the stock will likely be weak in overreaction to the results, we believe a host of positive catalysts are still to come during the remainder of 2017 and our buy thesis remains very much intact,” said analysts at Canaccord Genuity.

AMD is concentrating on the market for graphics processing units (GPUs) -- the brains that allow computers to render images -- because of the growth prospects. GPUs are in heavy demand by rapidly expanding industries such as data centers, gaming and virtual reality. At the same time, AMD continues to compete with Intel (INTC) in the traditional business of making central processing units for computers.

The company is a leader in the gaming market, being the sole supplier of certain custom chips for both Microsoft's Xbox One and Sony's PlayStation 4. As such, AMD is set to benefit from Microsoft's launch of its new Scorpio gaming console later this year. Don't be surprised is a successful debut of the console system gives AMD stock a boost.

Analysts at Stifel, who rate shares at hold, say the company is on track for market-share gains and forecast a return to profitability on an adjusted basis this year. (AMD lost 4 cents a share on an adjusted basis in the first quarter.) More broadly, analysts who track AMD are split between high optimism and caution. Of the 18 analysts surveyed by Zacks, nine call it a strong buy, eight say it's a hold and one has it at strong sell.

• Symbol: MT
• Share price: $7.90
• 52-week range: $4.18 - $9.37

The world's largest steelmaker is expected to post big jumps in revenue and earnings this year, thanks in part to growing demand in Europe and emerging markets. Industry group the World Steel Association expects European demand for steel to inch up 0.5% this year and 1.4% in 2018, driven by better-than-expected economic growth. Luxembourg-based ArcelorMittal derives nearly half its revenue from Europe.

The improving economic situations in Brazil, Russia and elsewhere are also adding to demand. Perhaps most importantly, China is slowing production in response to the global steel glut. The threat of tariffs in the U.S. also helps the outlook for prices.

Against that better fundamental backdrop, ArcelorMittal shares look attractively priced relative to growth prospects. Earnings per share are forecast to increase 30% this year on revenue growth of 17%, according to a survey by Thomson Reuters. However, the stock trades at just 9.5 times forward earnings, or about half the forward price-earnings ratio of the S&P 500.

Further, analysts at Credit Suisse say the global steel glut is actually a myth, and contend that the pressure on raw materials prices helps ArcelorMittal more than other industry players.

The analysts rate the stock at outperform (buy, essentially). Their price target of $11.71 implies a 50% gain in the next 12 months or so.

• Symbol: CAMP
• Share price: $18.08
• 52-week range: $12.13 - $18.49

CalAmp is a small technology company with big aspirations. It specializes in wireless communications products that allows machines to talk to each other, as well as collect, monitor and report data to their human operators. It acquired vehicle tracking company LoJack in 2016. Since the Internet of Things -- the movement to connect everyday devices from appliances to automobiles -- is growing at a brisk pace, CalAmp looks to be in the right place at the right time.

Equity research firm William Blair expects to see more cost savings from the LoJack deal. And further investments in the business should shift LoJack's "trajectory back to growth." Turning LoJack around won't be easy, analysts say, but William Blair applauds CalAmp's progress thus far, and believes the company can wring profits out of the technology.

Shares are up 25% year-to-date and could have more upside ahead, analysts say. Of the eight analysts surveyed by Zacks who cover the stock, four say it's a strong buy and four say it's a hold. Their average price target of $20 suggests the stock can rise 11% in a year's time.

• Symbol: DAR
• Share price: $14.89
• 52-week range: $11.51 - $15.93

Shares in Darling Ingredients, a rendering and biodiesel fuel company, are enjoying a great start to 2017. The stock is up 17% so far this year versus a 7% gain for the S&P 500.

The company is riding momentum from its strong finish to 2016, and ongoing investments in its biofuels business should continue to carry it this year and beyond. Investors are optimistic about Darling's joint venture with Valero Energy (VLO), to operate a processing plant in Louisiana to turn animal fat and used cooking oil into diesel fuel. A plant expansion is slated to be completed by the second quarter of 2018.

Investors also like the fact that the company continues to pare its debt. As of Dec. 31, 2016, Darling had long-term debt of $1.73 billion, down from $1.89 billion in the same period a year earlier.

Analysts expect more strong gains for the stock in the months ahead. All three analysts covering Darling rate shares a strong buy, according to Zacks. Their average price target of $17.17 implies a gain of 15% for Darling stock in the next year. With expected earnings-per-share growth of 9% this year and 21% next year, per Zacks, the stock looks reasonably priced as it trades at 21 times expected earnings.

• Symbol: HPQ
• Share price: $18.90
• 52-week range: $11.31 - $19.03

HP is another technology company benefitting from a better market for PCs. The world's second-largest maker or PCs enjoyed year-over-year shipment growth of nearly 7% in the final quarter of 2016, IDC says. It was the third consecutive quarter of increased shipments, which topped 15 million units for the first time since the end of 2014. IDC further notes that HP added to its share of the U.S. market. It now accounts for 31% of domestic PC sales.

HP is in about as mature an industry as you can get, but that doesn't mean value can't be found in its stock. Indeed, the market appears to have figured this out. Shares in HP are up 27% year-to-date versus a 7% gain for the S&P 500. And yet they remain reasonably priced. The stock trades at 12 times future earnings, according to a survey by Zacks. That's cheaper than the S&P 500, which goes for 17.6 times expected earnings for the next 12 months, according to FactSet.

HP stock has appreciated so much this year that some analysts are becoming more cautious. According to Zacks, five say it's a strong buy and one rates it at buy, but five call it a hold. Shares are currently trading near the top of the 52-week price range, but keep in mind that at a yield of 2.7% HP does offer a decent dividend based on the last four quarters of payments.

• Symbol: HBAN
• Share price: $12.95
• 52-week range: $8.05 - $14.74

Huntington Bancshares is a regional bank based in Columbus, Ohio. A recent merger with FirstMerit Bank expanded operations to Michigan, Wisconsin and Indianapolis. That expansion across the Rust Belt could prove to be beneficial if the White House gets its way on trade protectionism, corporate tax cuts and support for the coal industry.

Cost saving from the acquisition could also help Huntington get a grip on its expenses. The bank missed analysts' average earnings forecast for the first quarter because of higher costs. Investors should be reasonably confident that it will. The company is projected to produce per-share profit growth of 8.5% this year and 15% next year, according to Zacks.

Of the 15 analysts covering the stock, seven say it's a strong buy, one rates it at buy, and seven call it a hold. A recent upgrade to Buy from Hold at Jefferies could be the first of many if Huntington can bounce back with a better second-quarter showing.

The earnings report won't come out until this summer, however. In the meantime, investors will have to make due with a dividend yield of 2.3%. That's more than competitive with the regional bank average, which stood at just 1.63% at the beginning of 2017.

• Symbol: KEY
• Share price: $18.48
• 52-week range: $10.21 - $19.53

KeyCorp, the Cleveland-based regional bank, is starting 2017 on the right foot by delivering better-than-expected revenue and earnings for the first quarter. The happy surprise was due to cost savings from its 2016 acquisition of First Niagara Bank and lower losses on credit.

Analysts at Wedbush said KeyCorp is "firing on all cylinders" and has a lot of momentum going forward. "The first quarter tends to be seasonally the weakest and momentum usually builds throughout the year," Wedbush notes. "Additionally, the First Niagara acquisition is performing better than expected."

Wedbush rates shares at Outperform with a $22 price target. That gives the stock implied upside of 18% over the next year or so. The wider research community is split, but it also sees solid gains ahead. Six analysts say KeyCorp is a strong buy, one rates it at buy and nine call it a hold, according to Zacks. However, their average target price of $20 still calls for price appreciation of 9% over the next 12 months.

In another positive for the bank, rising interest rates will ease pressure on its profit margins, analysts note. The improved outlook for banks and the fruits of the First Niagara acquisition look to make shares a winner this year.

• Symbol: UCFC
• Share price: $8.59
• 52-week range: $5.60 - $9.50

United Community Financial Corp. is the holding company for the Home Savings and Loan Company of Youngstown, Ohio. It's a small bank, but it's getting big praise from the analyst community. Boenning & Scattergood says its transformation into a "formidable" commercial banking operation is "nothing short of impressive." B&S rates the stock at outperform, and it's not alone. The three analysts tracked by Thomson Reuters all say it's a buy.

The bank has been active in the mergers and acquisitions markets, which could spur a big jump in operating profits, B&S says. Companies often need to bolster their funding when interest rates are moving up.

Shares in United Community appear to be taking a breather after a strong 2016. The stock gained more than 50% last year and is currently down about 3% year-to-date. The pause shouldn't last long, if analysts are correct. Indeed, they're looking for the stock to rise 16% in the next 12 months.

Be forewarned that this is a very small stock. The company’s market capitalization – share price times number of shares outstanding – is just $424 million. The aforementioned regional bank KeyCorp has a market capitalization of more than $20 billion. Small stocks tend to be more volatile than large ones.

• Symbol: VSH
• Share price: $16.25
• 52-week range: $11.68 - $17.60

Analysts are hardly united in their view on Vishay Intertechnology, but the stock is cheap enough to merit a closer look from bargain hunters. Like AMD, Vishay manufactures semiconductors and is at the mercy of the cyclical market for computer chips. Fortunately, the market appears to be in an upswing, Stifel notes.

In light of solid demand, especially in Asia, Vishay's profit margins should rise off depressed levels as the market for semiconductors improves. And market researcher International Data Corporation notes that global shipments of personal computers are stabilizing after five years of declines.

Despite rising on strong quarterly earnings, it's not a sure thing that this brighter outlook is fully reflected in the share price yet. Vishay’s stock trades at 15 times expected earnings for next year, according to Thomson Reuters, or less than half the forward price-earnings ratio of AMD. That's an attractive valuation for a company forecast to increase its per-share earnings by 22% this year. It's also attractive given that analysts think earnings can deliver annualized gains of 17% over the next half-decade.

We know you're stressed out. Our strategies can help you simplify, streamline and organize your financial life to free up both time and cash.

Take a look.

Whether you’re a brand-new investor or an old pro, corralling a significant portion of your assets in the same fund can simplify your financial life and give you a clear picture of what you’ve saved and how close you are to meeting your goals.

With an asset-allocation fund, you get a stake in most major investment categories without having to shuffle the assets yourself. For example, Fidelity Four-In-One Index Fund (symbol FFNOX) holds four Fidelity index funds, with an overall mix of 85% of assets in stocks and 15% in bonds. The fund charges 0.11% of assets annually for a portfolio that includes stocks of large, midsize and small U.S. com­panies, shares of foreign companies in developed markets, and corporate and government bonds. Vanguard Star Fund (VGSTX) is more conservative, with 60% of the portfolio in stocks and the rest in bonds. Star invests in 11 actively managed Vanguard funds and charges 0.32%. The 15-year returns of both the Fidelity and the Vanguard funds place them in the top 25% of similar funds.

Target-date funds, like asset-allocation funds, hold a diversified portfolio of stocks and bonds, but they shift toward a more conservative asset mix as you approach retirement age. Vanguard and T. Rowe Price both offer solid, low-fee options.

Investors who are more hands-on can build a diversified portfolio on the cheap with exchange-traded funds. Just two Charles Schwab ETFs—US Broad Market ETF (SCHB) and US Aggregate Bond ETF (SCHZ)—give you a piece of some 2,000 stocks and 3,200 bonds. The funds charge expense ratios of 0.03% and 0.04%, respectively.

Consolidating your assets can make your investments easier to track (no more multiple statements) and reduce the paper trail at tax time. But do it carefully. If you transfer assets out of a taxable account, for example, watch out for tax consequences, transaction fees or transfer charges. You can avoid most charges by transferring assets “in kind” to the new account, but if you have to sell shares in a mutual fund your new firm doesn’t offer, you could trigger a commission or redemption fee—and a tax bill. If you roll 401(k) funds into an IRA, your company may send you a check payable to the new firm. If you fail to deposit it within 60 days, you’ll owe income tax on the money plus a 10% penalty if you’re younger than age 55.

If consolidating makes sense, choose a firm that charges low fees and has services you’ll use. Fidelity, for instance, offers more than 3,700 mutual funds without a load or transaction fee, and it sports a wide range of advisory and retirement-planning services. If your assets are difficult to move, consider aggregating them virtually, with an online investment-management tool such as Personal Capital. The site lets you link your investing accounts and analyze your whole portfolio on a single dashboard.

Pick a single rewards card with a generous payback on everything you buy and you’ll have just one credit card bill to pay each month, a single statement to monitor for errors and fraud, and one rewards program to track. Plus, you won’t have to think about which card to pull out at the register. With the Citi Double Cash card (annual percentage rate: 13.49% to 23.49%), for example, you’ll earn 1% when you make a purchase and an additional 1% when you pay the bill, for a total of 2% back on everything you buy. Investors may prefer the Fidelity Rewards Visa (14.49%), which earns 2% cash back on purchases when you deposit the rewards into a Fidelity brokerage, retirement, checking or 529 college-savings account.

If you like playing the rewards card game—juggling multiple cards for maximum earnings in different categories—you can simplify by using credit cards from a single issuer. If you stick with cards in the Chase Ultimate Rewards program, for example, you can pool the points you earn and exchange them for travel bookings, cash back, Amazon.com purchases and other rewards. The Chase Freedom Unlimited card (0% for 15 months, then 15.49% to 24.24%) rebates a flat 1.5% on all purchases. Chase Freedom (0% for 15 months, then 15.49% to 24.24%) offers 5% back on up to $1,500 spent each quarter in rotating categories and 1% on everything else you buy (so far in 2017, cate­gories that earned 5% included gas stations and grocery stores). And Chase Sapphire Preferred (16.49% to 23.49%; $95 annual fee, waived the first year) offers two points per dollar on travel and dining and one point on all other purchases.

Bank accounts are easier to manage if you keep them in one institution. Transfers from one account to another are usually quick, and you may qualify for other perks, such as waived monthly maintenance or ATM fees and higher interest rates on checking or savings. With Bank of America’s Preferred Rewards program, for example, customers who maintain a combined $20,000 or more in eligible checking, savings and Merrill Edge and Merrill Lynch investment accounts get fee breaks on mortgage origi­nations, overdraft transfers and other services, plus other benefits. Or you could choose an internet bank that offers a great all-around suite of accounts, no matter what your balance. Ally Bank, Capital One 360 and Discover Bank, for instance, have free checking, savings and certificate of deposit accounts with competitive yields and rewards.

Or treat a high-yield checking account as a savings account, suggests Ken Tumin, of DepositAccounts.com. The Consumers Credit Union (Illinois) Free Rewards Checking account, for instance, pays 4.59% on balances up to $20,000 if you make 12 debit card purchases monthly and spend $1,000 or more a month on one of the credit union’s credit cards and meet other requirements.

For a smoother transition from one tech device to another, choose sides in the Apple versus Android competition. With products from the same family, you can usually access apps, movies, books and even documents from multiple devices. For example, with Apple devices you can share information, websites and photos or continue iMessage conversations on your iPhone, iPad or Apple Watch.

A cluttered wallet is a pain to pick through. Plus, if you lose it, you’ll have to scramble to replace its contents and protect your identity. By carrying your debit and credit card information in a mobile wallet, you can pay for purchases with your smartphone and remotely erase sensitive data if the device lands in the wrong hands. Apple Pay, Android Pay and Samsung Pay are compatible with cards from most major banks and issuers. You can pay with the Samsung wallet (using the Samsung Galaxy S6 and S7, among other models) almost anywhere that accepts credit cards. But the Apple and Android wallets are limited to merchants equipped with near field communication (NFC) terminals and those that accept payments from the wallets through their apps, such as Starbucks and ride-share services Uber and Lyft. Some mobile wallets store loyalty card and gift card information, too. Or use an app: Key Ring stores loyalty cards, and Gyft holds gift cards.

If you want to close card accounts, shutting down the ones with the lowest limits may be the best move. That’s because to maintain a strong credit score, you should use no more than 30% of the credit available to you (less is even better). Or simply let the cards collect dust in a safe place.

To reclaim your desk from clutter, start by limiting the amount of paper that makes it into your home in the first place. Sign up for paperless delivery of banking, investment, loan and credit card statements, as well as internet, wireless phone, utility and other bills. Slim down your paper files by discarding older items. Utility bills and credit card and loan statements are generally available online for a year or more, and bank and investing statements are often available for several years. But don’t toss your tax returns; you’d best hang on to those forever (see When to Toss Tax Records). Use a cross-cutting shredder to destroy anything with personal information, such as account numbers or your Social Security number.

Consider digitizing documents you need to keep. Save PDFs of scanned images on your computer, then back up all of your files with an external hard drive. Consider using a scanner or a phone app, such as Smart Receipts, to take pictures of receipts for medical expenses or tax-deductible donations or large purchases that are under warranty.

A professional can tackle tasks with a level of speed and expertise that you may not possess.

• Accountant. A certified public accountant (CPA) can guide you through complex tax-planning issues and prepare your tax return. The average fee to prepare and submit a Form 1040 with itemized deductions and a state return is about $275, according to a National Society of Accountants survey. Search for a CPA who is a personal financial specialist at www.aicpa.org.
• Financial planner. A financial adviser takes a broad look at your cash flow, savings goals, investments and other areas of your financial life. You may be charged hourly, annually, by the project or as a percentage of managed assets. Search for fee-only planners at www.napfa.org.
• Health insurance claims specialist. If you are dealing with significant medical bills, a claims specialist can help you navigate the insurance system, find errors in bills and contest denials of insurance claims. Specialists often charge about $75 to $95 an hour; you can find one at www.claims.org.
• Professional organizer. An organizer can “help clients learn the skills and develop the systems they need to get and stay organized,” says Jennifer Pastore Monroy, executive director of the National Association of Professional Organizers. An organizer may charge about $50 to $75 an hour. Search for one at www.napo.net.
• Travel agent. If you’re planning a customized trip—say, a culinary tour in Europe—an agent can create an itinerary and may also alert you to hidden or unexpected expenses and hook you up with extra perks at the hotel or on tours. Some agents charge no fee to customers; if you do pay, the price may be from $25 to $100. Search for an agent at www.travelsense.org.
• Landscape professional. Hire one to do a onetime project—say, selecting low-maintenance plants—or for ongoing lawn care. Prices vary depending on the project. Search for professionals at www.loveyourlandscape.org.

To simplify life for you and your loved ones in the event of a health emergency, make sure you have a durable power of attorney and a power of attorney for health care (sometimes called a health care proxy) that name the person who should make financial and medical decisions on your behalf if you are unable to do so. You should also have a living will (or advance health care directive) outlining your wishes for treatments and interventions.

You can order a form for a durable power of attorney from a site such as LegalZoom for about $35, and you can find free state-specific living wills at www.caringinfo.org. Or an estate-planning attorney can help you draw up documents. Note that some banks and brokerages also have specific requirements for financial powers of attorney.

You’ve probably accumulated a lengthy list of online accounts for everything from e-mail and social media sites to travel sites and blogging platforms. Even if you stopped using the accounts ages ago, your digital footprints—including any personal information you provided to the company—are still sitting there, a potential treasure trove of information for identity thieves.

Sign in to accounts you no longer use (check your e-mail for old messages to jog your memory), then look for information about how to delete them. The websites may not make it easy, but AccountKiller.com and Backgroundchecks.org/justdeleteme collect links and instructions on how to remove accounts from popular sites, including AOL, Hotmail, MySpace and YouTube. In some cases, you’ll be able to simply log on to your account and follow the instructions to delete it. In others, you’ll need to send an e-mail to the site’s support or customer-service team. Once you hear back, or after a few days have passed, try logging on again and send a follow-up e-mail if necessary.

Continue tidying up your digital trail by curbing the number of ads and promotional messages that land in your in-box. Many of the e-mails include an option to unsubscribe or manage your subscription at the bottom of the message, but for a quicker fix, try Unroll.me. After you give the site permission to access your e-mail account, you can choose which subscription e-mails you no longer want to receive and combine those you do want into a daily e-mail.

For a budget that won’t bog you down, forget about creating categories and keeping track of limits on each one. Cristina Guglielmetti, a certified financial planner in New York City, has an easier way: Add up all your fixed expenses—rent or mortgage payments, utilities, debt payments, and savings for your emergency fund, retirement accounts and future goals—and subtract that from your monthly income. The result is your budget for variable monthly expenses, including food, entertainment and other bills you could find a way to cut if you had to, such as your cell-phone plan. Use a single rewards credit card for the variable charges so that your transactions are recorded in one place. That way you can easily track spending, set up alerts when you’re nearing your cap and earn some cash back in the process.

As you age and income changes, your fixed versus variable expenses will change. “This method becomes more important in your forties and fifties, when you still have time to make adjustments before retirement,” says Guglielmetti.

Several advisory services help you put your retirement withdrawal strategies on autopilot. For all except one, you need to have assets under management by the firm.

Robo adviser Betterment gives account holders access to its retirement income tool, which calculates a dynamic “monthly safe withdrawal” from your Betterment accounts based on your age, portfolio value and risk tolerance. Betterment also shows your required minimum distributions annually, so you can incorporate them into the withdrawals. There’s no account minimum. Fees range from 0.25% of the average asset balance per year (with no minimum) to 0.5% if you have at least $250,000 in assets. The higher-priced plan includes unlimited calls with Betterment’s financial experts.

Income Strategy offers software that helps you coordinate withdrawals (including RMDs) from all of your accounts, maximizes tax efficiency and designs a Social Security strategy that maximizes benefits. The software costs $500 for one-year’s access (the price includes up to two hours of advice from a financial professional). For more hand-holding, you can also use its advisory service. You’ll pay 1% for up to $1 million in assets, 0.75% for $1 million to $3 million, and 0.5% for more than $3 million.

Designed for the needs of near-retirees and retirees, robo adviser TrueLink sets up your investments and withdrawal strategy to match specific goals: “If your goal is income, we design it so you get a monthly check you can depend on,” with occasional adjustments for major expenses, such as a car purchase, says Kai Stinchcombe, cofounder and CEO. The plan factors in Social Security and other income, as well as RMDs. Underlying investments include ETFs and bond ladders. Cost: 0.87% of assets per year.

Vanguard Personal Advisor Services uses human advisers to help you come up with an investment-and-withdrawal strategy (based on your Vanguard portfolio) and to provide ongoing advice. The strategy considers Social Security and other income and factors in tax-efficiency and RMDs. The cost is 0.3% of Vanguard assets up to the first $5 million, with a $50,000 asset minimum.

TAKE OUR QUIZ: Are You Saving Enough for Retirement?

• Pay bills online. You can pay all your bills using most banks’ bill-payment feature. Or you can use Mint.com to set up auto pay for multiple bills (free if you’re paying with a bank account) as well as receive billing reminders and track spending.
• Rebalance investments automatically. Many firms offer automatic-rebalancing tools to help keep your portfolio’s mix of stocks, bonds and other investments from drifting off course. You can generally set up this feature by logging in to your account and selecting the auto-rebalance option.
• Track loyalty programs. AwardWallet keeps track of your points, miles and other rewards in nearly 700 loyalty programs, from airlines and hotels to credit cards and popular stores. The free service will notify you when your point balance changes and before your points expire.
• Manage passwords. End the vicious cycle of resetting forgotten passwords while keeping your accounts secure by using a service such as Dashlane. The service stores and encrypts your passwords and fills them in automatically when you’re browsing the web. The free version works for a single device, but for $40 a year you can sync your account information across multiple devices.
• Monitor credit. The free tool at CreditKarma.com will track your TransUnion and Equifax reports and alert you to changes, such as when a new account is opened or when your balance changes.
• Track deductible expenses. To make next year’s tax return less of a headache, start keeping tabs on deductible expenses and donations throughout the year using a program such as It’s Deductible, available through TurboTax. If you’re using a budgeting site such as Mint.com, flag expenses that may be tax-deductible as you review them so you can simply search for them at tax time.

Some things never seem to grow old, including the love investors have for dividend stocks. There’s a good reason we love dividends. Between 1930 and 2012, they accounted for about 40% of the total return of Standard & Poor’s 500-stock index, according to a Morgan Stanley study. Here are our favorite dividend-stock mutual funds—two index funds and five actively managed portfolios. The list, with one exception (Vanguard High Dividend Yield Index Fund), is made up of funds that invest in so-called “dividend growers”—companies that consistently raise their payouts. All of the funds have one thing in common: They have been less volatile than the S&P 500 over the past one, three, five and 10 years.

All returns and data are through February 1. Click on ticker-symbol links for current prices and more.

• Symbol: AMFFX
• Expense ratio: 0.67%
• Total assets: $41.8 billion
• 1-year return: 19.1%
• 3-year return: 9.3%
• 5-year return: 11.9%
• 10-year return: 6.6%
• Yield: 2.1%

We haven’t recommended American funds much in the past, in part because they were only available through advisers. Not anymore. Now Capital Group, which sponsors and manages the American Funds portfolios, offers a share class with no sales charge or transaction fee for each of its funds at certain brokerage firms. You can buy the F1 shares of American Mutual at Fidelity, Schwab and Scottrade with a super-low minimum initial investment of $250 ($25 if you opt for monthly automatic deposits). That and the fund’s low expense ratio, are part of this fund’s draw.

But the best thing about American Mutual is its ability to hold steady in rocky markets. Since its 1950 inception, American Mutual has outperformed the S&P 500 in all 14 market declines of 15% of more, says Morningstar analyst Alec Lucas. Losing less has helped over time. The fund’s long-term returns have been above average, and its risk has been well below average. Its 15-year record, a total return of 7.2% annualized, outpaces the S&P 500 by a smidge , and the fund was 18% less volatile over that time.

American Mutual invests in attractively priced stocks of industry leaders that pay steady dividends. It has some leeway to hold preferred stocks, convertible bonds, U.S. government bonds and investment-grade corporate debt, too. About 90% of the fund’s assets are invested in stocks, plus 2% in bonds and the remainder in cash. Its top three holdings are Verizon Communications, Texas Instruments and Amgen.

• Symbol: WSHFX
• Expense ratio: 0.66%
• Total assets: $86.9 billion
• 1-year return: 19.7%
• 3-year return: 9.6%
• 5-year return: 12.8%
• 10-year return: 6.4%
• Yield: 1.9%

Washington Mutual managers must follow a strict set of rules for the kinds of stocks the fund owns. But those guidelines, which target characteristics that are common among blue-chip stocks, make this fund a good fit for conservative investors looking for dividend stocks. One rule, for example, requires a company to have paid a dividend in eight of the previous 10 years. (Up to 5% of the fund’s assets can be in non-dividend payers, but they must pass even stricter requirements.)

Over time, the unique stock-picking strategy has delivered above-average returns with below-average risk. The fund’s 10-year annualized return, 6.4%, doesn’t beat the S&P 500, but it’s better than 77% of similar funds that invest in bargain-priced, large-company stocks. And the ride was 13% less bumpy than that of its peers.

Don’t let the fund’s size worry you. American Funds and its sponsor, Capital Group, employ a multiple-manager approach that cuts unwieldy funds down to size. Washington Mutual has eight managers, with each one running part of the fund separately from the others.

• Symbol: BUFDX
• Expense ratio: 0.98%
• Total assets: $52 million
• 1-year return: 20.4%
• 3-year return: 12.3%
• 5-year return: --
• 10-year return: --
• Yield: 1.5%

Buffalo Dividend Focus launched in 2012, which makes it the youngest fund among our picks. But we’re drawn to its nimble size: It has just $52 million in assets. And so far, managers Paul Dlugosch and Scott Moore have performed well. The fund’s three-year record beats the S&P 500 by an average of 1.4 percentage points per year.

Dlugosch and Moore focus on generating income by investing mostly in dividend-paying stocks that have a history of increasing those payments. They start with stocks with a market value of $1 billion—the fund can invest in companies of any size but favors large firms—and a minimum yield of 2.0%. The managers then zero in on bargain-priced companies that are leaders in their industry and that generate enough cash to support and raise dividends over time. Apple, for instance, is its top holding.

• Symbol: PRDGX
• Expense ratio: 0.64%
• Total assets: $6.9 billion
• 1-year return: 18.0%
• 3-year return: 10.4%
• 5-year return: 13.1%
• 10-year return: 7.2%
• Yield: 1.5%

Manager Tom Huber calls Dividend Growth an “all weather” fund. Since he took over the fund in 2000, he has seen a few stormy periods. Throughout the aughts, for instance, the S&P 500 lost an annualized 1.0%; Dividend Growth, a Kiplinger 25 member, gained 2.8%. In 2008, the fund’s 33.3% loss was 3.7 percentage points better than the S&P 500 and beat 85% of similar funds. In good times, the fund has lagged the benchmark, but only by a little. Over the years, providing ballast in bad times—and largely keeping up in good times—has made for a good overall record. Since Huber stepped in as manager in March 2000, Dividend Growth has returned 6.8% annualized, ahead of the 4.5% return in the S&P 500.

• Huber focuses on large, sturdy firms that throw off lots of cash and thus have the capacity to consistently raise their dividends. “If companies are raising dividends, that means earnings and cash are growing, too,” says Huber. “These kinds of companies tend to be durable.” Top holdings are JPMorgan Chase, Microsoft and UnitedHealth Group.

• Symbol: VEIPX
• Expense ratio: 0.26%
• Total assets: $25.4 billion
• 1-year return: 19.0%
• 3-year return: 10.3%
• 5-year return: 13.1%
• 10-year return: 7.2%
• Yield: 2.8%

We recently added Vanguard Equity-Income to the Kiplinger 25. It is run by two outfits. Wellington Management’s Michael Reckmeyer manages two-thirds of the fund’s assets; Jim Stetler and Michael Roach of Vanguard’s in-house quantitative group, which uses computer models to pick stocks, run the remainder.

Both firms focus on generating income and share-price gains by investing in large, high-quality companies with above-average yields. But the managers go about picking stocks in different ways. Reckmeyer favors large firms with superior growth prospects and an ability to boost the dividend over time. And he likes to buy when stocks are out of favor or trading at low prices. Stetler and Roach employ computers to home in on companies with strong balance sheets, consistent earnings growth and managers who make shareholder-oriented decisions (such as raising dividends), among other factors.

The two teams have been working together for almost a decade (since August 2007). Since then, the fund has returned 7.8% annualized, which beats the 7.5% return of the S&P 500.

• Symbol: VDAIX
• Expense ratio: 0.19%
• Total assets: $22.6 billion
• 1-year return: 15.9%
• 3-year return: 8.7%
• 5-year return: 11.1%
• 10-year return: 6.7%
• Yield: 2.1%

There is no scarcity of choices when it comes to dividend-oriented index funds. But we favor Vanguard Dividend Appreciation because it focuses on companies that regularly boost their dividends.

The fund tracks the Nasdaq US Dividend Achievers index, but eligible stocks include any U.S. security listed on Nasdaq or the New York Stock Exchange. The main qualification is that a company must have increased payouts for at least 10 of the past consecutive years. Limited partnerships, real estate investment trusts and financially troubled firms are excluded. Currently, 186 stocks make the mark (other proprietary screens help to winnow the list). The securities are weighted by market value; the bigger the company in market capitalization (share price multiplied by shares outstanding), the bigger its position in the fund. The fund is recalibrated once a year in keeping with the index. Its top three holdings are Microsoft, Johnson & Johnson and PepsiCo.

• Symbol: VHDYX
• Expense ratio: 0.16%
• Total assets: $17.1 billion
• 1-year return: 20.0%
• 3-year return: 11.3%
• 5-year return: 13.6%
• 10-year return: 6.9%
• Yield: 3.0%

In general, we prefer companies that consistently raise dividends to firms that simply pay a high dividend yield. But Vanguard High Dividend Yield doesn’t sacrifice quality for yield. The index that the fund tracks focuses on projected dividends, and firms with no payout expected over the next 12 months don’t make the cut. While the index’s construction methodology starts with companies of all sizes, in the end it is made up mostly of large, established firms. Holdings in the fund have an average market value of $83 billion. All told, the fund holds more than 400 stocks that have been screened for yield and then weighted in the fund by market value.

• Over the long haul, the fund has delivered more return for the risk than its typical peer (funds that invest in large companies with growth and value characteristics). Its 10-year annualized return outpaces 89% of its peers.