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More on investing from the Kiplinger team:

• Why ETFs Are One of the Easiest Ways to Start Investing
• Best Mutual Funds to Buy for 2026 and Beyond
• Is Dividend Investing Worth It? Pros, Cons and Rules to Follow
• What Is an Initial Public Offering (IPO)?
• What Is the Rule of 72 and How Can Investors Use It?
• Investing Jargon, Explained
• How Investors Can Use Cost Basis to Lower Their Tax Bill
• Dollar-Cost Averaging: How Does DCA Stock Investing Work?

The last time we checked in with Brown Capital Management International Small Company (BCSVX), the fund was reeling from a 2.3% decline in 2025 — a year when the MSCI ACWI ex USA Small Cap Growth Index gained 26%.

The fund is heavy in tech stocks, which sank, and it's light on materials and industrials shares, sectors that fueled much of the rally in 2025.

And now? Over the first four months of the year, BCSVX, a member of the Kiplinger 25, our favorite no-load mutual funds, declined another 12%, compared with an 11% climb in the aforementioned index.

That's not the whole story, however. Early 2026 has been a tale of two periods, the managers say: before the Iran war started and after.

Before hostilities began in late February, a rally in cyclical companies and a collapse in tech shares continued — and so did the fund's laggardly performance compared with the MSCI ACWI ex USA Small Cap Growth Index.

After the conflict started, though, investors did an about-face, snapping up quality companies that deliver mission-critical products and services to customers, the fund's bailiwick.

A sentiment switcheroo for this small-cap fund

In the roughly two months following the start of the conflict, International Small Company has held up better than its bogey.

Sectra AB, a Swedish medical-imaging tech company, and U.K.-based online investment platform AJ Bell have gained 27% and 21%, respectively, since late February. Camtek, an Israeli semiconductor capital-equipment firm, has been a big contributor, too. All are among the fund's top 10 holdings.

After just two months, we're wary of calling this a turnaround. But we're also a little weary of this fund's yearlong slump.

Brown Capital's International Small Company fund holds just 36 stocks. Tech and healthcare stocks make up 60% of the portfolio combined. It's a reminder that focused funds can be riskier than those that hold a bigger selection of stocks. We've identified a few potential replacements for it in the Kiplinger 25, but we're holding on for now and will check in with the fund again in a few months.

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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Dominic Rizzo, manager of the T. Rowe Price Global Technology Fund (PRGTX), loves his job. "It's exciting. This is the moment for technology," he says. Since taking over Global Technology in late 2022, he has delivered a 33% annualized return, ahead of the 24% average gain of tech-fund peers.

Rizzo favors companies with linchpin technologies in innovative, growing markets, among other things. Roughly half of its assets are invested in semiconductor stocks, such as Advanced Micro Devices (AMD) and Broadcom (AVGO), that are benefiting from the boom in spending on artificial intelligence (AI).

"That's been the right call," he says, and it's a big driver of the fund's 30% 12-month return, which beat 73% of its peers.

Cutting back on top holdings

Rizzo has trimmed some top holdings, including Apple (AAPL) and Microsoft (MSFT), in part to raise cash for new investments — Samsung Electronics (SSNLF), a memory-chip giant, and Datadog (DDOG), a cloud-based infrastructure-and application-monitoring company, are two.

But, he says, "we remain AI 'on' and semiconductor 'on,'" adding that these stocks aren't overpriced.

"People underestimate how much earnings are climbing for so many of these companies." Some top gainers, including Nvidia (NVDA), trade at a price/earnings-to-growth ratio, called the PEG ratio, of less than one, which is generally viewed as a sign that a stock is undervalued.

"I still think AI is bigger than people think," Rizzo says, adding that he expects the AI chip market to grow from $45 billion in 2023 to $500 billion in 2028 and $1 trillion in 2030.

PRGTX, a member of the Kiplinger 25, our favorite no-load mutual funds, is an "all-weather fund," says Rizzo. It can be volatile, but no more so than the typical tech fund. And in recent stretches when stocks have stumbled, the fund has held up better than its peers.

Loading up on mega caps helps dampen the fund's volatility, he says. So does spreading his investments across the globe (30% of the portfolio's holdings are non-U.S. stocks) and to other tech industries. That allows the fund to take a flier on some private AI companies, with stakes in OpenAI, Anthropic and Databricks.

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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After two lackluster years, the Primecap Odyssey Growth Fund (POGRX) is back. In 2025, the fund gained 33%, beating the S&P 500 Index, which climbed 18%, as well as 99% of all large-company stock funds.

Moreover, the fund did so without a big allocation to communications services and information technology companies, which top the performance charts and dominate the broad market.

Combined, the communications services and information technology sectors account for nearly half of the S&P 500 (they advanced 34% and 24%, respectively, over the past 12 months). But those sectors make up just over one-third of the Primecap portfolio.

Instead, POGRX, which is a member of the Kiplinger 25, our favorite no-load mutual funds, has hefty exposure to health care (26% of the fund's assets) and industrial stocks (18%). Health shares struggled for much of 2025 but rallied to finish with a 15% gain. And industrials returned 19%, just ahead of the broad market.

The fund's outperformance boils down to good stock picking, not sector exposures. Its best performers in 2025 included tech stocks, of course, such as Micron Technology (MU), which soared 240%.

But a few drug companies — BeOne Medicines (ONC), up 64%, and Rhythm Pharmaceuticals (RYTM), up 91%, for example — and a consumer-sector stock, Chinese e-commerce behemoth Alibaba Group Holding (BABA), up 75%, pepper the top contributors, too.

Primecap Odyssey Growth managers go their own way

Five managers divide the assets at Odyssey Growth and run their portion independently. But they all focus on growing companies priced at a discount with a catalyst to drive prices higher.

The process tends to create a portfolio that bears little resemblance to the S&P 500. For example, instead of the usual mega-size tech names, the fund's top holdings are pharma giant Eli Lilly (LLY); Xometry (XMTR), a Maryland–based machinery maker; and the aforementioned BeOne Medicines.

Over the past decade, the fund's 14.1% annualized return beat 65% of large-cap stock funds but lagged the 14.8% record of the S&P 500.

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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There are few certainties in life beyond death and taxes, but one of them is that you can always count on Vanguard Group to cut fees.

The nation's second-largest asset manager kicked off 2026 by once again cutting costs on a slew of exchange-traded funds (ETFs) and mutual funds. The move is part of a multiyear effort to save investors' hard-earned capital and boost their long-term returns.

This is what Vanguard does. The late, great Jack Bogle was keenly aware of the pernicious effects of costs on long-term performance. The Vanguard founder famously admonished folks never to allow the "tyranny of compounding costs" to overwhelm the magic of compound returns.

Put another way, Bogle said that when it comes to investing, "you get what you don't pay for."

No wonder Vanguard recently announced another sweeping round of cost reductions. The latest move slashes fees on a quarter of its U.S. funds. In total, 53 funds received a 27% fee reduction, on average, in early February, Vanguard said.

The firm now boasts an asset-weighted average expense ratio of 0.06%. That equates to 60 cents on every $1,000 invested.

Vanguard expects to deliver nearly $250 million in savings to investors this year. Combined with last year's fee cuts, investors are expected to save a staggering $600 million, Vanguard said.

"These fee reductions — set to deliver more than half a billion dollars in savings across 2025 and 2026 — are a clear expression of our purpose and commitment to our clients as owners," Vanguard CEO Salim Ramji said in a statement.

"When investors keep more of what they earn, the benefits compound over the long term, helping our clients achieve their most important financial goals."

Higher costs, lower wealth

Bogle's argument against costs was both elegant and elementary: every dollar you pay to an asset manager is a dollar that stops compounding for you.

Over a 50-year investment horizon, even a seemingly modest 1% annual fee can erode nearly half of your potential ending wealth. That's why Vanguard has cut fees and expense ratios more than 2,000 times since Bogle founded the firm in 1975. Expense ratios that started at 0.50% now average 0.06%. That's a very big deal.

Have a look at the table below to get a sense of the changes to some of Vanguard's biggest and most popular funds.

Vanguard's relentless attack on fees benefits all investors because other asset managers are forced to compete on price. The so-called Vanguard Effect has been revolutionary for retail investors. There's even an argument to be made that lower fees (and commission-free trading) boost equity valuations.

Vanguard notes that lower costs are directly correlated to the long-term performance of the firm's mutual funds and ETFs.

Need receipts? About 84% of Vanguard funds have outperformed their peer group averages in the past decade, including 88% of its active fixed-income funds, according to LSEG Lipper data.

If nothing else, Vanguard's latest cuts should prompt folks to double-check what they hold. If you own funds that charge, say, 0.50% for only market-matching returns, it's time to make some changes to your portfolio.

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Mutual funds solve many headaches for individual investors. If only they weren't such a burden come tax time.

These investment funds allow you to own portfolios of hundreds or even thousands of stocks for a fraction of what it would cost to buy all of those securities individually. They take research time and the hours to manage those portfolios, off your hands.

You can buy them with a click of a mouse. And as long as you mind your fees, they may charge very little for their trouble.

But mutual funds can be a pain from a tax standpoint. Indeed, their tax inefficiency is among the top reasons investors have left them in favor of the exchange-traded fund (ETF) "wrapper."

Mutual funds, after all, are pooled portfolios with managers who buy and sell securities. That buying and selling can generate capital gains, and by law, those gains must be passed on to shareholders (usually once a year) as taxable capital-gains distributions.

In other words: You could suffer investing tax consequences even if you didn't sell any shares yourself, and even if the mutual fund's overall value declined during the year.

That's rarely the case with ETFs, which function similarly to mutual funds but have much different "plumbing." Their creation/redemption mechanism allows ETFs to avoid triggering taxable events.

But if you're averse to paying the tax man, mutual funds aren't a wholly lost cause.

Read on as we explore some tax-efficient mutual funds. These specific tickers represent a trio of broader mutual fund types that generally deliver lower capital-gains and/or taxable income distributions than most others.

Data is as of June 29. 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: $832.2 billion
• Yield: 1.0%
• Expense ratio: 0.015%, or $1.50 annually for every $10,000 invested

Index funds tend to trade far less than actively managed funds. That's because they track rules-based indexes that usually only rebalance and reconstitute a few times a year.

Actively managed funds, meanwhile, can (and typically do) trade whenever they feel like they can get an edge by doing so. That dearth of trading activity translates into much lower (if not nonexistent) capital-gains distributions.

But all indexes are not created identically — some trade more than others, meaning some are less tax-efficient than others. That's not the only IRS consideration, either. Index funds that generate a lot of dividend income (stocks) or interest income (bonds) make higher income distributions to their shareholders, and those get levied too.

The S&P 500, then, is ideal on both fronts. It's practically glacial compared to most indexes — over the past 10 years, for example, the S&P 500 has averaged 21 new components per year, which sounds like a lot but is really only just more than 4% of the portfolio each year. It also yields a little more than 1% right now, which doesn't make for much of a tax bite, either.

You can own the S&P 500 through a number of funds, but it's difficult to think of one better than the Fidelity 500 Index Fund (FXAIX), which ranks among the best mutual funds to buy for 2026 and beyond.

Its 0.015% in annual expenses is as low as you'll find, not just among mutual funds but ETFs too. FXAIX has no minimum initial investment, so you can get started for as little as your brokerage or IRA will allow (usually just $1).

And as for taxes? In addition to the small dividend distributions, FXAIX hasn't paid a capital gains distribution since 2019.

Learn more about FXAIX at the Fidelity provider site.

Fidelity Small Cap Index Fund

• Fund category: Small blend
• Assets under management: $34.0 billion
• Yield: 0.9%
• Expense ratio: 0.025%

Small-cap ETFs are less likely to deliver much in the way of taxable income distributions. They tend to have much higher turnover than large-cap products, though, and that's true for actively managed and index funds alike.

But the Fidelity Small Cap Index Fund (FSSNX) is as tame as you could hope for.

FSSNX is a small-cap "blend" fund (read: both growth and value) that holds nearly 2,000 stocks. The Fidelity mutual fund churns a few hundred components every year, but that comes out to a relatively placid 14%.

Fidelity Small Cap Index hasn't paid a capital-gains distribution since 2021, and many of its past distributions were mild, at around 2% to 3%.

Learn more about FSSNX at the Fidelity provider site.

Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares

• Fund category: Large blend
• Assets under management: $30.0 billion
• Yield: 0.9%
• Expense ratio: 0.05%

While index funds by their very nature are tax-efficient, that's not to say they can't benefit from a little optimization.

Consider tax-managed funds, which will track an index but also incorporate other strategies, such as holding fewer dividend payers and even utilizing tax-loss harvesting, to minimize your tax obligations.

The Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX), for instance, "attempts to track the benchmark, while minimizing taxable gains and dividend income by purchasing index securities that pay lower dividends."

VTCLX is categorized as a large-cap fund, but your actual exposure is more diversified than that. It has a 20% allocation to mid-cap stocks, and another 4% to small-cap stocks.

And it delivers precious little in the way of taxable distributions. It yields less than 1%, and it hasn't made a capital-gains distribution since at least 2016 (Vanguard's data goes back 10 years).

Vanguard actually warns that "tax-managed funds are usually more expensive than comparable funds that don't have that additional layer of tax management. So they'll probably make sense for you only if you're in a higher tax bracket."

In VTCLX's case, that's half-true. Fees are economical, at 0.05% vs an average 0.68% among comparable funds. But the minimum initial investment of $10,000 is several times higher than the already lofty $3,000 minimum it charges on retail-facing funds.

Learn more about VTCLX at the Vanguard provider site.

Vanguard Tax-Managed Balanced Fund Admiral Shares

• Fund category: Moderately conservative allocation
• Assets under management: $12.3 billion
• SEC yield: 2.2%*
• Expense ratio: 0.05%

You can get similar tax-minded treatment with an even more diversified portfolio from the Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX).

This is a "moderately conservative allocation" fund that targets a 50/50 blend of stocks and bonds (though it's currently closer to 47% stocks and 53% bonds).

The stock sleeve's 840 components are predominantly mid- and large-cap stocks with an eye on minimizing dividend income. The bond sleeve is a wide 3,850 issues and almost entirely made up of municipal debt, which is exempt from federal taxation (and depending on where the shareholder lives, state and even local taxation).

So while the yield is higher than any of the funds covered so far, the tax impacts remain minimal. And VTMFX hasn't paid a capital-gains distribution in at least 10 years.

But like with VTCLX, you'll need to ante up $10,000 to get started.

* We're using the SEC yield here because a majority of VTMFX's assets are invested in bonds.

Learn more about VTMFX at the Vanguard provider site.

Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares

• Fund category: Municipal national intermediate
• Assets under management: $88.6 billion
• SEC yield: 3.4%
• Expense ratio: 0.17%

Speaking of which, municipal bonds are another way to get more tax efficiency from a mutual fund because they aren't taxable at the federal level.

And if you live in the locality and/or state of issuance, those taxes are exempted, too. A diversified municipal bond fund will own debt from across the country, so the tax break will be largely federal in nature. State and local will likely only apply to a small portion of your distributions, but, still, the benefits can be significant.

Consider the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX), a massive portfolio of more than 15,000 municipal bonds.

Portfolio managers James D'Arcy and Mathew Kiselak are tasked with owning munis largely within the three highest categories of credit ratings, though VWITX can own up to 20% in "medium-grade" bonds and 5% in "securities with lower credit ratings."

This actively managed Vanguard fund currently invests 85% of assets in muni bonds rated A or better; another 6% are BBB, 1% is considered "junk," and the remainder is in unrated bonds. (Unrated bonds aren't necessarily of lower quality.) The portfolio is made up of local obligations, special tax debt, higher education levies, utility munis and more.

The tax impact of holding munis is best described by explaining "tax-equivalent yield," which is the yield a comparable bond fund would have to provide to deliver the same amount of income once taxes were taken out. Let's say you were in the top (37%) federal tax bracket and also paid the 3.8% net investment income tax (NIIT). A taxable bond fund would have to yield a whopping 5.2% to offer the same amount of post-tax income!

Unlike the tax-managed funds above, this is a retail-facing fund with a more reasonable minimum initial investment of just $3,000.

Learn more about VWITX at the Vanguard provider site.

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No one would bat an eye if you called 2025 "the year of the ETF." At the same time, 2026 is even more of a banner year for exchange-traded funds.

The ETF industry grew to roughly $13.5 trillion by the end of last year — 30% year-over-year growth helped by rising markets, sure, but also record net new ETF flows of nearly $1.5 trillion. ETF inflows crossed the $1 trillion threshold earlier than ever this, in mid-June.

In the meantime, mutual funds' assets grew by 10% to a little more than $31 trillion, but the investment fund class saw about $540 billion in outflows last year. Outflows are accelerating in 2026.

Ignore my earlier statement — I think you'd get quite a few reactions out of the folks representing the mutual fund industry. That's in part because ETFs' recent success appears to be at the expense of mutual funds, and in part because we could make the exact same claim every year for a long, long time.

However, despite bleeding share to their more versatile, tax-efficient and cost-effective ETF brethren for many years, mutual funds are far from a failed asset class. Mutual funds still boast a number of qualities that make them attractive holdings not just in a bubble, but in the real world where ETFs exist as an alternative.

Let's take a look at three reasons why you'd still buy mutual funds over ETFs.

1. Mutual funds underperform the S&P 500 … but not all indexes

If you want to make the case for buying an S&P 500 index fund, all you have to do is cite the oft-repeated S&P Dow Jones Indices' SPIVA (S&P Indices Versus Active) data showing that the index regularly takes human managers to the woodshed.

Case in point? Looking at data through December 31, 2025, just 14% of managers of funds that own large-cap stocks have been able to beat the average annual return of the S&P 500 over the trailing 10 years … and that number drops to 10% over the trailing-15-year period.

Here's the thing: Large-cap strategies involve investing in the most well-known, well-researched, and well-covered stocks on the planet. There is precious little that the broader market doesn't know about these companies, so there are very few inefficiencies for human managers to exploit.

The disparity isn't as bad in other categories, however, and active management has done quite well over shorter time periods. For instance:

• 24% of small-cap managers have beaten the S&P Small-Cap 600 in the trailing 10-year period. But that shoots up to 58% in the past three years and about 59% over the past year.
• Almost 20% of midcap managers have topped the S&P MidCap 400 over the trailing 10 years, but that improves to 37% in the last three years and 45% over the past year.

Where human managers really earn their keep, however, is in fixed income.

In the trailing-five-year period, for instance, 27% of municipal bond fund managers have beaten the S&P National AMT-Free Municipal Bond Index, about 47% of general investment-grade managers have outdone the iBoxx $ Liquid Investment Grade, 72% of investment-grade short- and intermediate-term bond managers have topped the iBoxx $ Overall 1-5Y Index. In that latter category, 53% of all managers have outdone the index over the trailing-10-year period, too.

A reminder: Those are the averages. Some mutual fund managers have built sterling track records of outperformance across most time frames, even if their contemporaries haven't.

2. If you want active management, mutual funds are where it's at

ETFs rose to prominence on the back of cost-efficient index strategies, but the actively managed ETF world is flourishing. From Morningstar:

"Last year, active exchange-traded funds set more records as they continued to gobble assets," Stephen Welch, senior manager research analyst, Equity Strategies, wrote about fund flows in 2025 for Morningstar. "They took in roughly $475 billion, or about one-third of all ETF inflows."

Yet, ETFs still offer a fraction of the actively managed options available in the mutual fund world.

"Last year, close to 1,000 active ETFs launched, accounting for 35% of the roughly 2,800 US-domiciled active ETFs," Welch wrote, but "active ETFs still have a long way to go to catch mutual funds, of which there are more than 6,300 U.S.-listed strategies."

"But Kyle," you reply as you realize you're talking to your computer monitor, "aren't companies about to launch ETF clones of all their mutual funds?"

They might — but it'll likely take a lot longer than you think.

Vanguard was the first to have an ETF share class of a mutual fund approved — a quarter-century ago. The Vanguard Total Stock Market ETF (VTI) launched in 2001 as the ETF version of Vanguard Total Stock Market Index (VTSAX), followed by several other ETF versions of Vanguard's popular index funds.

No one has followed since, in large part because Vanguard owned the patent on the structure.

That patent expired in 2023. Two years later, in late 2025, the Securities and Exchange Commission (SEC) approved Dimensional Fund Advisors' application to launch ETF shares of 13 of its existing mutual funds. But while that might have poked a hole in the dam, that dam might take years to burst.

"In the background, there's so much plumbing and infrastructure, making sure things are communicating correctly," Daniel Sotiroff, senior analyst for ETF and Passive Strategies at Morningstar, said in a Young and the Invested interview. "You have mutual funds that have existed in one way for decades, if not the better part of a century now, and you have ETFs that have existed for 30 some-odd years, and they're completely different systems and now they have to talk to one another."

Sotiroff goes on to say that there are "relatively few firms" that are in a position to do this and do it well, and "the firms that are — I think of a Dimensional or a Capital Group — they're usually pretty prudent about what they're going to put in an ETF. They're not just going to start slapping the [ETF] wrapper on everything left and right."

3. Sometimes you must buy mutual funds … and that's probably for the best

If we're being brutally honest, a big part of why mutual funds haven't hemorrhaged even more assets is because many investors are forced to own them. Most 401(k)s, 403(b)s, 457s only allow investors to select from a handful of mutual funds.

If we're being brutally honest, this limitation likely saves many investors from themselves.

By forcing participants to own investment funds instead of individual securities, 401(k)s and other workplace plans are mandating a level of diversification that investors might otherwise avoid, drastically reducing concentration risk.

Moreover, by limiting investments to mutual funds — which don't trade throughout the day as ETFs do — 401(k)s discourage inexperienced investors from the frequent trading that numerous studies say produces underperformance compared to just buying and holding.

Would it be nice to have it all? Sure. But we're arguably better off being "stuck" in stodgy old mutual funds.

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There's more to the Mairs & Power Growth Fund (MPGFX) than its name implies. The managers favor firms with above-average earnings growth. But a durable, competitive position in their market — "a number-one or number-two position and gaining share," says comanager Andrew Adams — and a reasonable stock price matter even more.

That valuation focus has been a handicap recently, as pricey stocks in companies with little in the way of profits have led the market. Over the past 12 months, Mairs & Power Growth, a member of the Kiplinger 25, our favorite no-load mutual funds, has returned 5%, trailing its peers (large blend funds) and the broad market.

Stakes in two companies are partly to blame. Top 10 holding UnitedHealth Group (UNH)is down 45% over the past year. Increased medical costs in the health care company's Medicare Advantage business "shocked us," and it will take time "to right the ship," says Adams, who says he has been trimming the fund's stake.

But he's holding on, for now, to shares in Fiserv (FI), which have plummeted 72% over the past 12 months. The fintech firm, a provider of payments technology, slashed its profit forecast for the year, amid a sharp slowdown in growth and concerns about the firm's Clover payments platform.

On top of that, says Adams, the company's new chief executive said that a cyclical slowdown in Argentina, which had been a big contributor to the firm's growth in recent fiscal years, would crimp future results.

But Fiserv is still a top-two player in its field. Plus, a new executive team and an action plan for the future are in place. So he's staying put.

Over the past decade, the fund's hefty slug of upper-Midwest firms has slimmed down, thanks in part to the fund beefing up its holdings in tech stocks, which now make up one-third of the portfolio. But top holdings Nvidia (NVDA), Microsoft (MSFT) and Amazon.com (AMZN) haven't offset poor performance in other parts of the portfolio.

Over the past three years, the fund's nearly 17% annualized return lags the 21% gain in the S&P 500.

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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While all eyes have been on the runaway U.S. bull market, emerging markets stocks have delivered impressive results. The MSCI Emerging Markets stock index returned 29.7% in 2025 through November, far ahead of the S&P 500's 17.8% gain.

Emerging-markets fans say the rally is just the beginning of a long-term trend, supported by an evolving world order focused on deglobalization that will accelerate earnings growth and favorable currency swings in emerging markets over a period of several years.

"The U.S. market and the U.S. dollar have been kings for 15 years," says Arjun Jayaraman, a portfolio manager and head of quantitative research at Causeway Capital Management. "We're finally starting to see cracks in that."

A weaker dollar is a plus for international stocks, with overseas returns translating into more greenbacks back home.

Extended pressure on the dollar could lead to a repatriation of global capital out of the U.S. and into emerging markets, says Michael Kass, portfolio manager of the Baron Emerging Markets Fund (BEXFX). That process tends to play out over long cycles.

"We're near an inflection point in the dollar and long-term capital flows," he says, adding that a major bear market in the dollar isn't necessary for emerging markets to prosper. "If the dollar is flat, that's going to be good."

Strong fundamentals for emerging markets stocks

The International Monetary Fund's most recent economic outlook forecasts average growth for emerging countries of a bit over 4% in 2026 relative to 2025, compared with just 1.5% for developed economies.

Analysts expect double-digit earnings growth for companies in the MSCI EM index, with forecasts of 17.5% in 2026, up from a projected 11.4% in 2025, according to Wall Street economist and strategist Ed Yardeni, of Yardeni Research.

Yet stocks in the index remain attractively priced, trading at an average price-to-earnings (P/E) ratio of just over 14 based on estimated earnings for the 12 months ahead. The U.S. market trades at 23 times earnings.

Of course, investing in emerging markets carries increased risks, says Yardeni, including domestic political instability, trade tensions, geopolitical perils and pockets of debt stress. "We see an opportunity to invest broadly across EMs," he says, "but be mindful of the risks and regional disparities."

The risks are real, but the IMF report also noted that although global financial shocks have historically had an outsize impact on emerging markets, "recent experience marks a departure from this pattern, with many emerging markets displaying remarkable resilience," in part due to more credible and effective monetary and fiscal policies.

How to invest in emerging markets

A good way to play emerging markets stocks is with a fund such as the Baron offering above, a member of the Kiplinger 25, the list of our favorite no-load mutual funds.

Portfolio manager Kass sees several promising themes. A deglobalization scenario that redraws trade routes and beefs up domestic spending on defense is benefiting South Korean shipbuilding and defense firms. Taiwan boasts global franchises in artificial intelligence, as well as companies that produce supporting hardware and services throughout the AI ecosystem; China is neck-and-neck with the U.S. in terms of robotics.

"Everything Tesla is doing, companies in China are doing something similar," Kass says. The fund returned 28.6% in 2025 through November.

The Causeway Emerging Markets Fund (CEMVX), up 31.0% over the period, is another good choice. The fund's biggest bet relative to the emerging-markets benchmark is South Korea, where the government is following Japan's lead in putting pressure on firms to improve corporate governance and increase dividend payouts.

The fund's portfolio underweights India at the moment, as earnings have been lackluster and the market has lagged. But comanager Jayaraman is positive on the long-term outlook, given the likelihood of India's strong economic growth for the rest of the decade "without the gimmicks of artificially low interest rates, or a concentration in AI."

With a broad global benchmark recently counting emerging markets as 11% to 12% of assets, allocating 15% of total stock holdings to EM stocks "is not betting the farm," Jayaraman says. And as increasingly speculative tech giants account for so much of the U.S. benchmark, it makes sense to broaden your portfolio. "Today, EM is not the high-risk asset class,'' he says.

We should note that emerging markets bonds have also done well, with the Bloomberg Emerging Markets Aggregate Bond Index returning 11.6% over the first 11 months of 2025, compared with 7.5% for the Bloomberg U.S. Aggregate Bond Index.

"Emerging markets did a good job staving off inflation and, from a fiscal standpoint, have gotten their house in order. Developed markets are the ones driving up deficits," says portfolio manager Brian Kennedy at Loomis Sayles.

Our favorite EM fixed-income fund is the Vanguard Emerging Markets Bond Fund (VEMBX), up 13.6% over the period.

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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You might recognize Vanguard for its wide lineup of low-cost equity index funds and the lasting legacy of its late founder and chairman, John Bogle. Less appreciated is that The Vanguard Group, which Bogle founded in May 1975, has also been a major force in bond investing for decades.

That presence dates back to 1986. Fresh off the launch of its first stock fund, Vanguard introduced the Vanguard Total Bond Market Index Fund (VBTLX). At the time, this was a meaningful shift.

For individual investors, buying bonds typically meant going through a Wall Street bond desk or working with a financial adviser. Pricing was opaque because most bonds trade over the counter, and even placing an order was cumbersome.

The math behind bond pricing, yield calculations and duration also created a steep learning curve for retail investors.

Vanguard's solution was to bundle thousands of investment-grade bonds into a single fund. The portfolio included U.S. Treasury bonds, agency mortgage-backed securities and corporate bonds, with exposure spread across short, intermediate and long maturities.

Instead of navigating individual bond trades, investors could gain diversified fixed-income exposure in a low-cost, liquid and accessible format.

Fast forward to today and the Vanguard Total Bond Market strategy is still around, now offered in multiple share classes and at lower costs than ever. More importantly, it represents just one piece of a much broader fixed-income lineup.

Investors who prefer to stay within Vanguard's ecosystem can build a complete bond allocation using its mutual funds and ETFs, without needing to look elsewhere.

Here's what you need to know when choosing the best Vanguard bond funds.

The buyer's guide to Vanguard bond funds

According to Vanguard's built-in mutual fund and ETF screener, out of roughly 370 total funds, 128 are classified as "fixed income." Choosing between them comes down to three core considerations.

First is your risk tolerance. This refers to how much day-to-day market volatility you can handle and, more importantly, how deep of a drawdown you can tolerate and for how long.

Bonds are often viewed as a stabilizing force, but that does not mean they are immune to losses. Being honest about how much volatility and downside you can withstand is essential before selecting a bond fund.

Second is your time horizon. Bond maturity should generally align with when you expect to need the money. If you are investing for the long term, longer-maturity bond funds may make sense.

If the goal is shorter-term, such as saving for a home down payment or an upcoming tuition bill, shorter-term bond funds are usually more appropriate because they are less sensitive to interest rates.

Third is your investment objective. Some investors use bonds primarily to balance a portfolio and reduce overall volatility. Others prioritize income. This distinction helps determine the right credit quality.

High-quality Treasury or investment-grade bond funds are typically better for stability, while high-yield corporate bond funds, or junk bunds, can provide more income but come with higher credit risk.

Vanguard's screener makes this process straightforward. Investors can filter funds by credit quality, ranging from high to low, and by maturity, from short to long.

These two levers form the foundation for selecting the right bond fund.

There are also some practical details to understand, starting with the fact that many Vanguard bond strategies are available as both mutual funds and ETFs.

This structural flexibility stems from a now-expired Vanguard patent that allowed certain mutual funds to offer ETF share classes, improving tax efficiency and accessibility.

Mutual funds typically come in "investor shares" and "admiral shares" versions.

Investor shares usually have higher expense ratios but lower minimum investments, while admiral shares offer lower expense ratios with a typical $3,000 minimum investment requirement.

Another version, "institutional shares," is intended for use by pension funds, endowments and insurance companies.

Vanguard's bond ETFs, by contrast, require only the price of a single share, or less if your brokerage supports fractional shares.

Bond ETFs trade throughout the day, like stocks, while bond mutual fund orders settle once daily at net asset value.

Regardless of structure, Vanguard bond funds generally pay monthly distributions.

Although individual bonds usually pay interest semi-annually, bond funds pool those payments and distribute them monthly, which can make income more predictable for investors.

How we picked the best Vanguard bond funds

Picking the right bond fund from a lineup of 128 options is very much a your-mileage-may-vary decision. What works well for one investor may not work for another.

A retiree may prioritize a Vanguard bond fund focused on high-quality U.S. Treasuries to preserve capital.

A younger investor may be more willing to accept lower credit quality in exchange for higher income.

Others may simply want the lowest-cost, most diversified option available.

With that in mind, we selected five Vanguard bond funds that each serve a distinct purpose rather than trying to crown a single "best" option.

Each fund was chosen to represent one of the following categories: minimum fees; high safety; above-average yield; good tax efficiency; and maximum diversification.

Within each category, we limited our choices to funds with at least $1 billion in assets under management to ensure scale, liquidity and longevity.

We also applied a strict cost discipline. While Vanguard is known for low fees, differences still matter over time.

We capped the expense ratio at 0.25% annually, which translates to $25 a year in fee drag on a $10,000 investment.

For each fund, we highlight the key details investors need to evaluate suitability.

This includes the expense ratio, minimum investment requirements where applicable, the 30-day SEC yield and the availability of different share classes.

Vanguard Total Bond Market Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.04% (0.03% for ETF)
• 30-day SEC yield: 4.31%
• Minimum investment: $3,000

Today, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is available with a modern counterpart, the Vanguard Total Bond Market ETF (BND). Vanguard's first bond fund tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broad benchmark designed to represent most of the U.S. investment-grade bond market.

The portfolio spans corporate bonds, U.S. Treasuries, mortgage-backed securities and asset-backed securities across short, intermediate and long maturities.

Individual bond maturities range from about one year to more than 25 years. From a credit perspective, most holdings fall into AA, A and BBB ratings, alongside a large allocation to U.S. government bonds.

Because of this wide maturity mix, the fund's average duration sits at 5.8 years. That translates to moderate interest-rate sensitivity.

All else equal, a 1% rise in interest rates would be expected to reduce the fund's net asset value by about 5.8%, while a 1% decline in rates would have the opposite effect. Investors are currently compensated for taking that risk with a 4.31% 30-day SEC yield.

The 0.04% expense ratio makes VBTLX extremely affordable, even with the $3,000 minimum investment.

BND, meanwhile, carries a lower 0.03% expense ratio and trades at a market price of $73 per share, making it easier to access for new investors.

Learn more about VBTLX/BND at the Vanguard provider site.

Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.06% (0.03% for ETF)
• 30-day SEC yield: 0.60% (before inflation adjustment)
• Minimum investment: $3,000

Bond investors face two primary risks: credit risk and interest-rate risk. Credit risk shows up when lower-quality bonds lose value during economic stress. Longer-term bonds are much more exposed to rate changes, which is why long-duration bond funds suffered double-digit losses in 2022.

If your priority is safety, the Vanguard Short-Term Inflation Protected Securities Index Fund Admiral Shares (VTAPX) stands out. The fund holds Treasury Inflation-Protected Securities (TIPS).

TIPS' principal value rises when inflation increases. Their value falls when inflation declines. Because interest payments are calculated as a percentage of that inflation-adjusted principal, the size of the coupon payments also changes over time.

VTAPX further reduces risk by focusing on short-maturity TIPS. The fund's average duration is about 2.5 years, which limits sensitivity to interest-rate increases that often accompany higher inflation. That combination of government credit quality and short duration makes it more defensive.

The stated 0.60% 30-day SEC yield can look underwhelming at first glance, but it doesn't include the inflation adjustment to principal. Actual income can end up higher or lower depending on how inflation evolves, which is the entire point of holding TIPS as an inflation hedge rather than a pure income vehicle.

Like many Vanguard bond funds, VTAPX is also available as an ETF in the form of the Vanguard Short-Term Inflation Protected ETF (VTIP).

VTIP cuts the expense ratio in half to 0.03% and removes the $3,000 minimum investment. The ETF can be purchased for roughly $50 per share, making it more accessible for many investors.

Learn more about VTAPX/VTIP at the Vanguard provider site.

Vanguard High-Yield Corporate Fund Investor Shares

• Dual share class: Yes (Admiral Shares)
• Expense ratio: 0.22% (0.12% for Admiral Shares)
• 30-day SEC yield: 6.09%
• Minimum investment: $3,000 ($50,000 for Admiral Shares)

One of the most established principles in fixed-income investing is that higher credit risk is typically compensated with higher income.

Moving beyond U.S. Treasury bonds takes you to investment-grade corporate bonds. Moving one step further takes you to high-yield corporate bonds, often referred to as junk bonds. These are bonds with credit ratings below BBB.

Vanguard offers exposure to this segment through the Vanguard High-Yield Corporate Fund Investor Shares (VWEHX). The fund charges a 0.22% expense ratio with a $3,000 minimum investment. Investors with $50,000 available can access the Admiral Shares version VWEAX, which lowers the expense ratio to 0.12%.

This fund carries real risk. While it holds over 1,000 individual bonds, credit quality is firmly in speculative territory. More than half of the portfolio is rated BB, roughly another third is rated B, and a smaller portion is rated CCC or lower. During economic slowdowns, this part of the bond market can experience sharp drawdowns alongside equities.

That risk is reflected in the income. VWEHX is one of the highest-yielding bond funds in Vanguard's lineup, with a 6.09% 30-day SEC yield for the Investor Shares. The lower expense ratio of the Admiral Shares pushes the yield to 6.19%. This makes the fund appealing for income-focused investors who can tolerate volatility and potential credit losses.

However, tax efficiency is a drawback. Interest income from corporate bonds is fully taxable at both the federal and state level, making this fund better suited for tax-advantaged accounts such as Roth IRAs rather than taxable brokerage accounts.

Learn more about VWEHX/VWEAX at the Vanguard provider site.

Vanguard Tax-Exempt Bond Index Fund Admiral Shares

• Dual share class: Yes (ETF)
• Expense ratio: 0.07% (0.03% for ETF)
• 30-day SEC yield: 3.47% (before tax equivalent adjustment)
• Minimum investment: $3,000

For some investors, taxes matter just as much as yield, especially for those in higher income brackets.

As your taxable income rises, each additional dollar of interest income is taxed at a higher marginal rate. That makes fully taxable bond income less attractive in a brokerage account.

Municipal bond funds address this issue by providing income that is exempt from federal income tax and, in some cases, state taxes as well. For broad national exposure, it's hard to beat the Vanguard Tax-Exempt Bond Index Fund Admiral Shares (VTEAX).

The fund tracks the Standard & Poor's National AMT-Free Municipal Bond Index and holds investment-grade municipal bonds issued by states, cities, and public authorities.

While not risk-free, the fund maintains relatively strong credit quality. Most holdings are rated AA, with the remainder largely split between AAA and A, reflecting the essential nature of the underlying projects and the broad diversification across issuers.

The stated 3.47% 30-day SEC yield is exempt from federal income tax and the alternative minimum tax. That means investors should evaluate it using tax-equivalent yield, which estimates the taxable bond yield required, based on your tax bracket, to generate the same after-tax income as VTEAX would.

VTEAX is also available as an ETF. The Vanguard Tax-Exempt Bond ETF (VTEB) cuts the expense ratio to 0.03%, removes the $3,000 minimum investment and trades at roughly $50 per share, making it more accessible for smaller portfolios.

VTEB also reports a slightly higher 30-day SEC yield due to lower ongoing costs.

Learn more about VTEAX/VTEB at the Vanguard provider site.

Vanguard Total World Bond ETF

• Dual share class: No
• Expense ratio: 0.05%
• 30-day SEC yield: 4.21%
• Minimum investment: N/A

The Vanguard Total World Bond ETF (BNDW) is arguably Vanguard's most diversified bond fund. The low-cost ETF tracks the Bloomberg Global Aggregate Float Adjusted Composite Index.

This benchmark spans more than 18,000 bonds worldwide, covering government and investment-grade corporate debt across U.S. and international markets, including both developed and emerging economies. The fund currently offers a 4.21% 30-day SEC yield.

BNDW is structured as an ETF of ETFs, allocating roughly half of its assets to BND and the other half to the Vanguard Total International Bond ETF (BNDX). While investors could replicate this mix themselves, BNDW packages it into a single, highly efficient vehicle at minimal cost.

One important detail is that BNDX is currency-hedged, since its underlying bonds are issued in foreign currencies while the ETF trades in U.S. dollars.

This hedging reduces the impact of currency fluctuations, so returns are driven primarily by bond performance rather than movements in foreign exchange rates.

Learn more about BNDW at the Vanguard provider site.

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The stock market draws a lot of investor attention, but bonds deserve some love, too. Over the 12 months ending October 31, the Bloomberg U.S. Aggregate Bond Index climbed 6.2%. On a calendar-year basis, the index is on track to post its best return since 2020, thanks in part to relatively high starting yields and solid returns from corporate and securitized debt, particularly mortgage-backed bonds.

Dodge & Cox Income (DODIX), a member of the Kiplinger 25, our favorite no-load mutual funds, has done even better. Over the past 12 months, the intermediate core-plus bond fund returned 7.0%, beating 82% of its competition. A heavy bet on securitized debt — which accounts for more than half of the fund’s assets, double the exposure the Agg index has to those IOUs — helped.

The managers have been barbelling bonds in that sector, balancing short-term, floating-rate mortgage-backed and asset-backed securities with a large allocation to pools of fixed-rate, government-guaranteed residential mortgage-backed bonds.

"These securitized holdings provide reliable liquidity," the managers said in a recent report, as well as appealing return prospects and low volatility relative to corporate debt.

Contrarians at heart

The fund’s eight managers work as a team, investing mostly in high-quality U.S. debt. A strong price discipline prevails in all decisions, and they’re not afraid to buy when others are running for the hills.

During the April 2025 bond market swoon, for instance, the Dodge & Cox Income managers snapped up discounted corporate debt, including a new stake in Mars, a private maker of snacks and pet-care products.

When they buy, they hold. The fund boasts a low turnover of 14%, which implies an average holding period of about seven years. By contrast, its peers sport an average turnover ratio of 180%, which implies a six-month holding period.

Over the long haul, the fund stands out. Its 3.2% 10-year annualized return beat 89% of its peers and the Agg index. It yields 4.3%.

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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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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Value investing enjoyed 15 minutes of sunshine in early 2025, when the S&P 500 sank 19% from its February peak to its early April trough. Dodge & Cox Stock (DODGX) — a member of the Kiplinger 25, our favorite no-load mutual funds — held up better, albeit with a 15% decline.

Since then, the large-company value fund has rebounded 21% through September. That's impressive, but it lags the S&P 500, which has bounced 34%. All told, over the past 12 months through September 30, Dodge & Cox Stock has climbed just over 9%, far short of the nearly 18% gain in the S&P 500.

It's a good time to remember that the point of holding funds with different investing approaches is to enhance diversification — it can smooth out your returns, for starters. These days, the S&P 500 is more growth- and momentum-tilted than ever, which makes Dodge & Cox Stock a good foil.

The fund's biggest holdings, Charles Schwab (SCHW), industrial firm Johnson Controls International (JCI) and aerospace and defense company RTX (RTX), bear no resemblance to the tech giants at the top of the S&P 500. Each of the three is up more than 40% over the past 12 months, by the way.

Hunting for bargains

The fund's six managers are true-blue contrarians. If a sector or industry is struggling, you can bet they're looking for hidden gems. Recently, they increased their investment in the health care sector, a market laggard since the start of 2023 and the worst-performing sector over the past 12 months.

Over the first half of 2025, they even added to stakes in embattled health giant UnitedHealth Group (UNH), which brought back a former chief executive to run the firm in May. "UNH is currently trading at a discount compared to the overall market, the health care sector and its historical valuation," the managers said in a report over the summer.

It can take time for their investment hypotheses to play out, so patience is required for investors in the fund. But over the past five years, Dodge & Cox Stock's 17% annualized return beats the S&P 500.

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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If you're interested in purchasing gold through gold mutual funds, we can't say we're surprised. The yellow precious metal is enjoying one of its greatest breakouts of the past century.

After several attempts to make a sustained run above the $2,000-per-ounce mark over the years, it finally broke through in 2024, then sailed past the $3,000 mark earlier in 2025. More recently, it cleared the $4,000 price level.

That's roughly a doubler in less than two years' time, and nothing generates more new-investment buzz than an all-time heater.

Today, we'll point you toward some gold mutual funds we think are worth further consideration. Each has accumulated billions of dollars' worth of assets because of their ability to allow investors to participate in the commodity's rise.

But we're also going to explain why, in several circumstances, you might want to go in another direction for your gold exposure.

Why would you invest in gold?

Gold has long been considered a defensive investment, for numerous reasons. As I've written before, gold's allure in everyday scenarios can largely be tied to two characteristics:

Low correlation to stocks: The metal historically provides low to zero correlation with stocks, which makes it a potent source of portfolio diversification. That's why financial experts frequently say you should buy gold, but to limit it to about 5% to 10% of your assets.

Hedge against inflation: This is more a "perceived" characteristic. The theory goes that because gold is priced in U.S. dollars, inflation is actually a positive for gold. That's because as the dollar itself is worth less, gold becomes more expensive compared to dollars.

But as Kiplinger contributor Dan Burrows writes, reality often doesn't match the hype: "Even gold's reputation as an inflation hedge isn't all that great. Historically, at least, gold returns have only kept up with inflation over the long haul; the metal hasn't outperformed. Over the short and medium term, gold's record as an inflation hedge is generally pretty poor."

And in extreme-case scenarios, gold's tangible nature makes it an appealing holding during periods of chaos.

Indeed, in explaining gold's current parabolic run, BofA Global Research writes that "economic uncertainty and global instability have boosted the appeal of precious metals, leading to both investors and central banks increasing gold reserves."

None of that speaks to buying gold right this second — we'll defer to the experts on that front.

Why buy gold mutual funds?

The average person buying gold for investment purposes simply doesn't need the hassle inherent to purchasing physical gold.

You have to find a dealer, transport that gold, purchase appropriate safe storage, insure it (you don't have to, but it's a good idea), then find someone to take that gold off you when you want to sell.

By the way, you may also pay a markup when you buy physical gold and get a little less than its worth when you sell, so there's financial inefficiency to deal with, too.

Gold mutual funds, on the other hand, are as easy to buy and sell as … well, other mutual funds. Open up your brokerage account, click your mouse a few times, log off, have a sandwich.

But should you buy gold mutual funds?

Let's quickly look at a trio of names in the space. Two are among the largest such mutual funds, while the third is a smaller but established and well-respected product.

Fidelity Select Gold Portfolio

• Fund category: Equity precious metals
• Assets under management: $3.6 billion
• Yield: 1.6%
• Expense ratio: 0.68%, or $68 annually for every $10,000 invested
• Sales charge: N/A
• Minimum investment: N/A

The Fidelity Select Gold Portfolio (FSAGX) invests in more than 50 gold stocks – primarily gold exploration, mining and processing companies, but also a few royalty companies that own royalty streams to various projects.

Virtually all its holdings deal primarily in gold, but several also have operations involving silver, copper, platinum, diamonds and other commodities.

FSAGX is predominantly international in nature, with nearly 80% of its assets allocated in Canadian firms, including top-10 holdings Agnico Eagle Mines (AEM), Franco-Nevada (FNV) and Wheaton Precious Metals (WPM).

American firms make up less than 10% of assets, and most of that is concentrated in Colorado-based Newmont (NEM). None of this is abnormal — many gold mining funds are built similarly.

It's hard to beat Fidelity mutual funds on price, and that's certainly the case with FSAGX, on several fronts. Not only are its annual fees low, but it has no required investment minimum, and unlike many of its peers, it has no front-end sales charge.

Fidelity Select Gold currently garners a Bronze Medalist rating, Morningstar's forward-looking assessment system. But it's worth noting that its historical returns have been middling compared to the category, and it's under relatively new management, with Boris Shepov taking the reins in late 2024.

Learn more about FSAGX at the Fidelity provider site.

OCM Gold Fund Atlas Shares

• Fund category: Equity precious metals
• Assets under management: $173.3 million
• Yield: 1.0%
• Expense ratio: 1.88%
• Sales charge: N/A
• Minimum investment: $1,000

OCM Gold Fund Atlas Shares (OCMAX) is a much smaller gold mutual fund with a focus on mining companies that's similar to FSAGX. Its 50 holdings are largely gold producer stocks such as Agnico, Alamos Gold (AGI) and Lundin Gold (LUGDF).

However, it does have some exposure to pure-play exploration-and-development stocks, a few silver "primaries" (silver is their primary metal, but they also deal in gold) and a high-single-digit weighting to cash.

OCMAX might have a fraction of the Fidelity fund's assets, but it's an accomplished product. Its performance over the trailing 10- and 15-year periods is within the top 3% of its peers. And it earns a Silver Medalist rating for its strong management team and investment process. The minimum investment, at just $1,000, is extremely reasonable for a mutual fund, too.

Its major drawback is costs. "Despite its strengths, its fee remains a consideration, as it is priced within the most expensive quintile among peers," Morningstar says.

Learn more about OCMAX at the OCM provider site.

First Eagle Gold Fund A Shares

• Fund category: Equity precious metals
• Assets under management: $4.9 billion
• Yield: 2.7%
• Expense ratio: 1.16%
• Sales charge: 5% maximum, reduced on a tiered scale based on size of initial investment
• Minimum investment: $2,500

First Eagle Gold Fund A Shares (SGGDX) is the largest gold-specific mutual fund by assets, amassing almost $5 billion in AUM over its 30-plus years of trading.

The majority of SGGDX's portfolio looks just like the other two funds, with more than 75% of assets invested in a tight portfolio of 22 miners such as Wheaton, Agnico Eagle and Kinross Gold (KGC).

Where SGGDX stands apart is its modest 11% and 8% allocations to gold and silver bullion, respectively. (The remainder is in cash.) That means you're getting at least a little direct access to the price of gold … though that's also being somewhat muddied with the direct exposure to silver.

Performance has been mixed, with First Eagle's fund outperforming its category over certain periods but underperforming over others.

But looking forward, Morningstar awards SGGDX a Gold Medalist rating, lauding its low volatility exposure and high yield exposure, and also expressing optimism about leadership remaining intact amid a majority investment from Genstar Capital.

We typically don't highlight funds with sales charges. But as far as gold mutual funds are concerned, there aren't many options that don't feature sales charges for everyday retail investors.

Learn more about SGGDX at the First Eagle provider site.

Why you might want to consider gold ETFs instead

You likely noticed that all three gold mutual funds above are built around gold mining stocks.

That's not necessarily bad, per se – it's just one type of gold exposure. Specifically, you're not just investing in the price of gold itself, but also these companies' ability to make money off the price of gold.

Because there's an additional layer of speculation and uncertainty there, gold miners tend to trade in a more exaggerated fashion than gold – that is, if gold rises, gold miners often rise further, and vice versa.

To wit? As I write this, the price of gold is up nearly 60% year to date. FSAGX has delivered a total return (price plus dividends) of 122%.

But mutual funds largely limit you to this kind of exposure; it's rare for mutual funds to, say, actually hold bullion (let alone provide only that kind of exposure) or trade in gold futures. Moreover, gold mutual funds tend to be fairly expensive and often require retail investors to pay onerous sales charges that immediately impact performance.

If you have the option of investing in exchange-traded funds (ETFs), gold ETFs can be an ideal choice.

Not only do the market's best gold ETFs represent a much wider array of strategies, but they also never have sales charges, expenses are generally lower than gold mutual funds, and the investment "minimum" is just one share (or less if your brokerage offers fractional shares).

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When other investors start to lose interest in certain stocks, Fidelity International Growth Fund (FIGFX) manager Jed Weiss says, "my ears perk up." He favors firms with good long-term growth prospects, attractive stock prices and solid moats around their businesses.

Over the past three, five and 10 years, he has outpaced his peers (foreign large-company growth funds) and the fund's benchmark, the MSCI EAFE Growth Index.

But in recent years, FIGFX – a member of the Kiplinger 25, our favorite no-load mutual funds – has not kept pace with the broader MSCI EAFE Index, which includes growth and value stocks.

Over the past 12 months, the fund's 11.8% gain has lagged the EAFE index's 17.7% rise. The primary reason: Bank stocks make up 24% of the index, and they have performed well since interest rates around the world have climbed from near-zero levels.

The Fidelity International Growth owns some financial services stocks, but there's a "big gap" in exposure to the sector between the fund and the EAFE index, says Weiss.

Even so, the fund's bright spots include German software company SAP (which has returned 52% over the past 12 months), French aerospace and defense company Safran (up 55%), and U.K.-based aerospace firm BAE Systems (up 60%).

Meanwhile, Weiss says, he "gobbled up great franchises on the cheap" during the April stock selloff. On top of adding to stakes in existing positions, he initiated positions in Belgian bank KBC Groupe and German ticketing firm CTS Eventim, among others.

Weiss's contrarian tilt has resulted in an above-average stake in U.K. stocks in recent years. Investors have ignored that market since Brexit, he says, and "a lot of shares in great global franchises are trading at valuations that you haven't seen for years."

Some British stocks that are newish to the fund include the London Stock Exchange, RELX, which owns the LexisNexis legal database, and Howden Joinery Group, a supplier of kitchen and joinery products (doors, cabinets, furniture) to builders.

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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The Securities and Exchange Commission (SEC) is on the verge of allowing major changes to the way exchange-traded funds (ETFs) and traditional mutual funds are structured.

Specifically, an SEC ruling could allow dozens of asset managers to offer existing mutual funds as ETF share classes.

That might sound like technical minutiae … a distinction without a difference. Investors already have thousands of ETFs and mutual funds from which to choose. What difference would it make if the ETFs themselves were simply a share class of a mutual fund?

Some of this comes down to taxes. There are very real differences in the ways that ETFs and mutual funds are taxed, so the SEC's decision — expected to come down within the next several months — will matter a lot for most folks investing in a regular taxable brokerage account.

It's also a potential win for fund managers, as it opens their existing strategies to a broader pool of investors.

Are there benefits for investors? Are there any drawbacks that investors should be aware of?

Let's take a look.

What is the SEC considering when it comes to mutual funds and ETFs?

It's normal for mutual funds to have multiple share classes that vary based on fees, sales loads or account minimums.

Back in the early 2000s, Vanguard patented a clever setup that let an exchange-traded fund be just another share class of an existing mutual fund.

This meant one mutual fund could offer both traditional mutual fund shares and ETF shares that were both backed by the same underlying portfolio, management and performance record.

That patent expired in 2023, leading to a flood of requests from other fund managers. To date, more than 60 have petitioned the SEC for regulatory relief that will allow them to issue ETFs as share classes of existing mutual funds.

The SEC doesn't have a reputation for moving quickly. As with most government regulators, there is a process, and that process is often slow and bureaucratic.

We're starting to see movement, though. In March, then-Acting SEC Chairman Mark Uyeda instructed staff to prioritize reviewing these petitions.

Given the Trump administration's preference for deregulation, the likelihood is that a decision will happen within the next few months that will open the floodgates for ETF share classes of existing mutual funds.

Why do mutual funds want ETF share classes?

There are plenty of reasons for fund companies to petition the SEC to allow for ETF share classes of mutual funds.

To start, this allows them to keep their track record of fund performance, which in some cases can stretch back decades, as the ETF would be considered part of the existing fund as opposed to a new one.

This would also be true of existing ETFs that wanted to offer mutual funds for 401(k) plans. As things stand now, an ETF with a great long-term performance wouldn't be able to mention the track record if an identical strategy was created in a mutual fund format.

It's also potentially cheaper and faster to create a new share class than to launch an entirely new product.

But mostly, it's about taxes.

Mutual funds and ETFs are taxed differently because of how investor flows are handled.

In a mutual fund, when investors redeem shares, the fund often has to sell securities to raise cash. Those sales can generate realized capital gains, which must be distributed to all shareholders — whether they sold shares or not — creating a potential tax bill for all fund holders.

I sell my shares, and you get stuck with the tax bill. It's not exactly an ideal situation.

By contrast, ETFs use the in-kind creation/redemption process. Large institutional investors can exchange baskets of the underlying stocks for ETF shares (and vice versa) without the fund selling holdings.

This allows ETFs to get rid of appreciated securities without triggering taxable gains inside the portfolio and soaking their investors.

Because Vanguard had ETFs as share classes of its existing mutual funds, its mutual funds were able to piggyback on the ETFs' tax advantages. The Vanguard 500 Index Fund (VFIAX), for instance, hasn't paid a capital gains distribution since 2003.

Why this matters to investors

It's always nice to have options at your disposal, and having an ETF version of your favorite mutual funds isn't a bad thing.

Existing investors in mutual funds might also get a tax break. As we saw in the case of the Vanguard S&P 500 index fund, the mutual fund was able to shift would-be capital gains into its ETF share class and avoid making capital gains distributions.

Other mutual funds could potentially be able to do the same, though it should be mentioned that having an ETF structure of an existing fund doesn't guarantee that capital gains distributions will be eliminated.

If a fund manager trades aggressively to the extent that the gains can't be offset by in-kind redemptions, there might still be taxable distributions to deal with.

It can also go the other way. Just as mutual fund investors might benefit from ETF tax efficiency, exchange-traded fund investors could end up dealing with mutual fund tax inefficiency if the assets are comingled.

This would be a particular risk in cases in which the ETF share class was a relatively small part of the overall fund and the fund generated substantial realized capital gains.

In a tax-advantaged account such as an IRA or 401(k), none of this is a major concern. A tax-paying investor should consider this, particularly for a new ETF share class of a large existing mutual fund that does a lot of active trading.

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Tariff worries have hurt stocks in companies of all sizes. But small-company stocks bore the brunt of the pain. The Russell 2000 Index fell as much as 28% from peak to trough during the worst of the market selloff earlier this year.

A small recovery has helped lift returns – some. All told, over the past 12 months, the benchmark logged a slim, 1.2% gain. The T. Rowe Price Small-Cap Value Fund (PRSVX) – a member of the Kiplinger 25, our favorite no-load mutual funds – fared better with a 3.0% gain.

Fund manager David Wagner spent the market's worst days being a contrarian. He trimmed stakes in utility stocks and real estate investment trusts (REITs), which were performing well, and invested in "the most economically sensitive and tariff-exposed names," says Wagner, including retail and restaurant businesses, as well as materials and chemicals companies with exposure to global trade.

"People were overreacting to potential changes in tariffs. I'm not saying we don't view it as a problem, but none of this stuff is settled," he says.

Betting on better results

Wagner bought a stake in shoe company Steven Madden (SHOO) after the shares lost nearly half their value. It is the number-one importer of women's shoes in the country, he says, with a big chunk coming from China. Since hitting a low in mid-April, the stock has recovered 27%.

Wagner likes to focus on unloved fare, but lately he says he's drawn to companies with a "differentiated" approach.

Carvana (CVNA), for instance, "has upended the way people buy used cars," he says. He bought the stock as the firm teetered toward bankruptcy for $30 a share in late 2023; it recently traded for $327.

"It's a large cap now,” he says. "But we let it run. We invest with a long time horizon, and we don't sell arbitrarily when stocks surpass" small-cap measures.

Wagner has run Small-Cap Value since mid-2014. Over the past decade, his 7.7% annualized return beat 72% of his peers.

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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The Mairs & Power Growth Fund (MPGFX) tilts toward growth stocks in companies of any size that trade at reasonable prices.

It also has a regional quirk: The majority of the fund's companies must be based in the upper Midwest, near the fund managers' St. Paul, Minnesota, home base.

In the past, the fund's regional focus meant the portfolio had a heavy tilt toward the industrial, financial and health care sectors.

But in recent years, managers Andy Adams and Peter Johnson have picked up shares in tech stocks – at the right price, of course – including Nvidia (NVDA), Microsoft (MSFT) and Amazon.com (AMZN), among others.

Those shares are among the fund's top holdings now, and they have been in retreat for much of the first four months of the year.

As a result, Mairs & Power Growth lost 7.5% for the year to date through April, lagging the 5.1% decline in the S&P 500 Index. Over the past 12 months, the fund's 5.0% gain lagged the S&P 500 by a wide margin as well.

Even so, many of the fund's financial stocks advanced, including JPMorgan Chase (JPM), Fiserv (FI) and Visa (V). All have posted double-digit gains over the past 12 months, which helped the fund's return.

Gains in Swiss pharmaceutical firm Roche Holdings (RHHBY) and utility company WEC Energy Group (WEC) provided a lift, too.

We're watching the fund – which is a member of the Kiplinger 25, our favorite no-load mutual funds – closely. Tech stocks make up 34% of the portfolio, above average for its peer group and up from a small exposure a decade ago.

During the selloff, the managers added another tech stock, Taiwan Semiconductor Manufacturing (TSM), to the portfolio (albeit at discounted prices).

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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After lagging the S&P 500 Index in each of the past three calendar years, health care stocks have outperformed the benchmark handily since the start of 2025, albeit with a slim loss.

The S&P 500 has declined 14% for the year to date through April 7; health care stocks have lost just 2%.

Our favorite health fund, the Fidelity Select Health Care Portfolio (FSPHX) – a member of the Kiplinger 25, the best no-load mutual funds – lags the sector index for the year to date. But over the past 12 months, the fund outpaced 65% of its peers despite a 6.9% loss.

Stakes in medical device companies advanced, including shares in Boston Scientific (BSX), as did certain biotech holdings, such as Alnylam Pharmaceuticals (ALNY).

What haven't done well are managed care companies, such as UnitedHealth Group (UNH). Uncertainty about government policy, particularly about Medicare, was a drag.

The other problem: Costs accelerated in 2024 for these firms thanks to inflation, says manager Ed Yoon, and government reimbursements for Medicare Advantage didn't keep pace.

Yoon favors companies with increasing demand for their products or services and improving free cash flow (money left over after operating expenses and spending to maintain or expand the business).

The recent good turn is a rebound after the sector's bad post-election results last year, says Yoon. In the last quarter of 2024, health care stocks sank 10% as the S&P 500 rose 2.4%.

"But the market feels like it's beginning to broaden out, and if that continues, it should bode well for the sector," he adds – before admitting he has said that before.

Still, things have changed in the health sector. While investors weren't looking, "innovation has progressed, and companies that weren't making money are now profitable. That can be a powerful driver for stock prices," Yoon says, adding that much of the sector's change has "gone unnoticed."

Since taking over as manager in 2008, Yoon has posted a 12.5% annualized return, which has outpaced the typical health fund and the S&P 500.

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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Choosing between individual stocks and equity mutual funds depends on your preferences, financial goals and risk appetite.

Including common stocks in retirement portfolios can mitigate the adverse effects of inflation. On the other hand, a mutual fund enables many investors to combine their money with a professional investment manager, buying and owning shares in the fund rather than individual company shares owned by the fund.

A balanced portfolio holding stocks and mutual funds can offer reassurance and confidence in your investment strategy. Here’s what you need to know:

1. Your level of control

Individual stocks: You select which company shares to buy and sell.

Mutual funds: The investment manager has total discretion.

2. Research and performance

Stocks: You make buy-and-sell decisions based on your own research, knowledge and expertise.

Funds: The fund manager manages the portfolio, researches and monitors performance.

3. Fees and expenses

Stocks: You pay commissions and fees for purchases and sales, though commission-free trades are common. Many brokers charge annual account maintenance fees.

Funds: Most funds have ongoing costs — referred to as “expense ratios” — that cover operating, management, administrative expenses and marketing. Other fees may also be charged.

4. Valuation, marketability and transparency

Stocks: Common shares are priced when the market is open and can be bought or sold during that time. You always know the portfolio composition.

Funds: Mutual fund shares are priced at the end of the day and trade at that closing price. A complete portfolio listing of all stocks is published periodically.

5. Dividends and capital gains

Stocks: You know the amount and timing of dividends received. You also determine the timing of sales that generate capital gains and losses.

Funds: Dividends and capital gains are accumulated in the fund and distributed periodically. Mutual funds can distribute only net capital gains, not losses.

6. Diversification and risk

Stocks: It’s riskier to hold one or two stocks, but you can control the degree of diversification and concentration in any single company, industry or geographic region.

Mutual Funds: With a large basket of stocks, risk is spread around — although most funds have stated investment objectives that are usually limited to a single characteristic, such as U.S. large-cap stocks. Over time, however, the positions in the fund may drift from the initial objective.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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You’re probably used to getting (and ignoring) lots of information from your brokerage, mutual fund, or investment adviser. But here’s one notification you should pay attention to: a request to designate a trusted contact.

What’s a trusted contact? It’s a person 18 or older who can tell your financial institution where you are — and how you are — if you can’t be reached or there’s something suspect about your financial requests or instructions.

Suppose, for example, your financial institution notices unusually large withdrawals from your retirement account, or that someone in Brussels has charged the down payment on a BMW to your debit card. Normally, your bank or brokerage will simply call you and ask what on earth you’re doing (in so many words).

But what if your financial rep can’t reach you because you’re out of town, or you’re sick, or you’re simply letting your mail pile up? In that case, your trusted contact can tell the bank where you might be, or if there could be some other reason you’ve been out of touch, such as travel or a natural disaster.

Or what if your actions are suddenly out of character? For financial advisers, there’s a clear reason why clients should have a trusted contact.

“Suppose you had a conservative client — he’s paid off his house, doesn’t use credit cards — and one day he calls and says, ‘I need $100,000 and I need it now,’” says Mary Ballin, partner and wealth adviser for Perigon Wealth Management in Walnut Creek, California. “It’s a sensitive situation,” she says. “You want to make sure he’s okay.”

Vanguard, the Valley Forge, Pennsylvania, mutual fund giant, has a team dedicated to calling attention to accounts whose owners may be having cognitive difficulties or are potentially being taken advantage of, says John Ginelli, head of investor protection at Vanguard.

The company uses a mix of surveillance methods, ranging from computer algorithms to referrals from telephone representatives, to flag unusual activity. Only members of the team may reach out to a trusted contact, he says.

Even though you’re not legally required to appoint a trusted contact, you probably should. Here’s what a trusted contact might do:

Confirm contact information

Contacts need to be able to verify the client’s home and cell phone numbers, and possibly the client’s e-mail address. If the client has changed his or her residence or phone number, a trusted contact should know that, too.

Know who can speak for the client

Contacts should be able to inform the financial institution of any legal guardian, executor, trustee or holder of a power of attorney on the client’s account. These individuals can also be helpful in tracking someone down.

Speak to whether there is a health or other crisis

Is the customer in the hospital perhaps, or showing signs of dementia? For example, if a customer inquires repeatedly about a transaction and seems confused, the company may call a trusted contact to see whether they have noticed any difference in behavior.

Trusted contacts should also be able to say whether they think someone is being manipulated or abused.

If you’re the trusted contact, you might have to consider proactively getting in touch with the financial institution and the client to discuss a concern.

For example, victims of fraud may refuse to believe that they’re being conned, says Ginelli. “A trusted contact might help that client to see the light.”

What trusted contacts can’t do is access a client’s accounts or make transactions. And if you’re asked to be a trusted contact, don’t worry about sharing your information with the financial institution — it may not use information about a trusted contact for marketing purposes, so agreeing to be one won’t result in sales pitches for investment products.

Choose your trusted contact carefully

Typically, your trusted contact won’t be your financial planner or broker. Barry Glassman, a certified financial planner with Glassman Wealth Services, agrees.

“I’ve never been asked to be a trusted contact, nor would I accept that role. It seems like a conflict. It should be someone who interacts with the client beyond a financial planning relationship.”

Clearly, your trusted contact needs to be relatively easy to reach. For married couples, the obvious candidate is a spouse, Ballin says.

Older couples might also consider an adult child, or the executor of their will, Ginelli says. You may establish more than one trusted contact.

And don’t forget to ask your contact first.

“Before adding their information to your accounts, it’s a good idea to discuss this with your chosen trusted contact so they’re aware of the responsibility should your financial institution need to reach out,” says Leanna Devinney, vice president, branch leader at Fidelity Investments.

If you have already named a trusted contact, review that designation periodically. People drift apart — or die. In either case, they won’t make a good trusted contact.

The trusted contact form is optional, even though the Securities and Exchange Commission and the Financial Industry Regulatory Authority endorsed the policy in 2018. If you’ve never seen one, you’re not alone. “I haven’t received one yet,” says Patrick Chu, editor at the Wall Street Journal.

What percentage of investors have a trusted contact? “Like every firm out there, I can say that we don’t have enough,” Vanguard’s Ginelli says. “The more the better. The law requires us to solicit people to have trusted contacts and have a method for doing so, but it doesn’t require clients to have one.”

If you’re interested in naming a trusted contact, call someone at your broker, financial adviser, or mutual fund company. They should be able to provide you with the proper forms. You may also be able to find a trusted contact form on your financial representative’s website.

Ginelli says that some clients have reached out to Vanguard after getting a diagnosis of cognitive disability, for example. The trusted contact form is probably the easiest financial form you’ll ever fill out, he says. “We just need a name, a phone number, a street address, or an e-mail address.”

Other ways to protect your financial account

If you’re worried about becoming the victim of fraud or making unwise actions on your own because of cognitive disability, be sure to designate someone with power of attorney in case you’re disabled or otherwise unable to take care of your own affairs, even temporarily.

Setting up joint financial accounts with a spouse or an adult child can ensure that someone is watching your money — although a joint account will let the co-owner make withdrawals, too. Authorizing someone (often called an agent) can give them permission to make transactions in your account, but the authorization can also be drawn up to allow only account monitoring or inquiries.

Finally, make sure you’re doing what you can on your own to protect your accounts. Use strong passwords, multifactor identification and secure Wi-Fi.

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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In six of the past seven full calendar years, the Primecap Odyssey Growth (POGRX) has lagged its benchmark, the S&P 500. We're growing weary of waiting for a return to the fund's fantastic outperformance of years past, but we're not ditching it from the Kiplinger 25, the list of our favorite no-load mutual funds.

The fund isn't an index-hugger, it's clear, but therein lies its value. Because Odyssey Growth has an "unconventional collection of stocks" that hardly resemble the index, as the managers said in its recent annual report, the fund can help boost the overall diversification of your portfolio.

It has little exposure to the stocks of the huge companies known as the Magnificent Seven, for a start. The fund doesn't hold Apple (AAPL). And the remaining six, including Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA), made up just 9% of the fund's assets at last report. For comparison, those six stocks make up a combined 24% share of the S&P 500.

Another drag came from Odyssey Growth's longstanding tilt toward healthcare stocks. Nearly 30% of the fund's assets are invested in that sector – almost triple that of the S&P 500. But health stocks have trailed the broad-market index over each of the past six years.

Both factors contributed to the fund's performance over the past 12 months. Odyssey Growth, up 19.9% – a spectacular return on an absolute basis – fell short of the 26.4% return in the S&P 500.

The five Odyssey Growth managers divide the fund's assets and run a portion of the portfolio independently. But they all focus on growing companies priced at a discount that have a catalyst – a new product, say, or a restructuring – to drive prices higher. That process leads to a portfolio that's different from the S&P 500 in other ways, too, such as valuation:

The fund's stocks trade at an average price-to-earnings (P/E) ratio of 19 (based on year-ahead estimates), which is far lower than the S&P 500's P/E of 24. Top holdings include Eli Lilly (LLY), Alphabet (GOOGL) and Raymond James Financial (RJF).

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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• This T. Rowe Price Bond Fund Holds Up Well as Interest Rates Change

Short-term interest rates have come down, but floating-rate or bank loans, which carry interest rates that reset in line with a short-term benchmark, still sport robust yields. The yield on the typical bank-loan fund, 7.4%, topped every other bond fund category at the end of 2024, according to data firm Morningstar.

T. Rowe Price Floating Rate (PRFRX), our favorite bank loan fund and a Kiplinger 25 member since 2022, yields 7.2%. "The coupon rate on bank loans has never been higher," says fund manager Paul Massaro. "That leaves a cushion for bank loans to endure even more Fed cuts and still deliver high income."

Over the past 12 months, Price Floating Rate has gained 8.7%, outpacing 67% of its peers. By contrast, the Bloomberg U.S. Aggregate Bond index returned 1.3%.

In truth, bank loans can do well whether interest rates are rising or falling, within parameters. When rates are rising (and bond prices, which move in the opposite direction, are falling), these securities typically hold up better than the broad bond market because their interest payments adjust upward, too. In 2022, the Fed raised rates four times, and the typical bank loan fund lost 2.5% – but the Bloomberg U.S. Aggregate Bond Index fell 13% (Price Floating Rate lost 0.7%).

When interest rates fall, bank loans don’t necessarily sour, as long as the cuts aren’t draconian and the result of a struggling economy. Despite the Federal Reserve's one-percentage-point cut in short-term rates in 2024, for example, bank loans still beat "almost everything in fixed income," says Massaro. As long as the pace of rate cuts remains modest in 2025, he adds, Price Floating Rate should perform relatively well.

Massaro and his team of analysts dive deep to find quality loans trading at a discount. Over the past decade, the fund's annualized return of 4.7% beat 85% of its peers.

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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America's manufacturing industry, after waning for decades, is adjusting to a world that has ditched globalization for reshoring – bringing production back home. That has set the stage for an infrastructure building boom, much of it backed by the U.S. government.

"The U.S. is in the early innings of reindustrialization, a multi-decade investment opportunity that will restore growth to the U.S. industrial economy following 20-plus years of stagnation," Morgan Stanley research analyst Chris Snyder wrote in a recent report.

The big infrastructure buildout is worth paying attention to because it encompasses a broad range of businesses in a number of sectors. Many infrastructure companies are old line industrials, including businesses that make heavy machinery or parts for industrial production. Other companies provide services to such businesses or transport goods or people. Also included under the infrastructure tent are companies in the materials, energy and utilities sectors. Even some tech firms are considered infrastructure plays these days.

It's the dawn of a new era for infrastructure spending

America's manufacturing industry is beginning to reassert itself. The dominance of U.S. industrial firms began to decline when China joined the World Trade Organization in 2001. Back then, American industrial companies made up roughly 12% of the market value of the S&P 500.

But cheap labor abroad and a focus on globalization helped to undermine the sector, as companies moved manufacturing overseas. (At the same time, the soaring fortunes of technology-related firms shifted market leadership in their direction.) Today, industrial stocks represent just over 8.5% of the S&P 500.

But the tide is turning. The COVID-19 pandemic highlighted the downsides of operating some businesses on an international scale. Think back to the floating traffic jam of 50 container ships in the Pacific Ocean waiting to dock in California in 2021. Such supply-chain snafus increasingly spurred domestic companies to bring production back to the U.S., and some foreign firms are building manufacturing plants in the U.S. to be closer to their American customers.

As the shift got under way, it became abundantly clear that the country's aging infrastructure, after decades of underinvestment, badly needed an upgrade, from the power grid to railways, bridges, highways and airports. Politicians on both sides of the political aisle agreed. Between 2021 and the end of 2022, lawmakers decided to allocate nearly $2 trillion in federal funding and other incentives to restore manufacturing in America and upgrade the country's infrastructure through a combination of three acts: the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act.

"This massive investment could drive long-term growth for the industrials sector for years to come," says Fidelity's David Wagner, who runs the firm's Select Industrials Portfolio.

More than 60,000 projects have been announced as part of the $1.2 trillion Infrastructure Investment and Jobs Act, including 10,000 bridge projects, 175,000 miles of roadway repairs and 1,100 airport modernization projects, among other things.

Nearly $60 million, for instance, will pay for a seventh runway, as well as other upgrades, at Denver International Airport. And $30 billion of the $280 billion CHIPS and Science Act has been earmarked to help fund 23 projects, including 16 new semiconductor manufacturing facilities in 15 states so far. Two years ago, the U.S. produced none of the world's most advanced chips, according to the government. By 2032, the country will produce nearly 30% of the global supply of leading-edge chips.

Indeed, an unprecedented amount of spending is being "funneled into a relatively small area of the U.S. economy," says Yung-Yu Ma, chief investment officer of BMO Wealth Management, who has been recommending that investors allocate a bigger percentage of their portfolio to U.S. infrastructure since early 2023. "These trends are strong and durable," he says.

There's room for infrastructure stocks to run

Judging by the soaring returns in some bellwether stocks, the industrial renaissance is well underway. Industrial giants such as Caterpillar (CAT), GE Aerospace (GE) and RTX (RTX) have each posted gains of more than 50% over the past 12 months – ahead of the 34% climb in the S&P 500.

There's even an artificial intelligence (AI) angle to some infrastructure stocks that is fueling share-price increases. Mounting demand for data centers to handle AI tasks, for instance, has pushed shares in Digital Realty Trust (DLR), a real estate investment trust (REIT) that specializes in data centers, up 45% over the past 12 months. The stock now trades at a five-year-high price-to-earnings (P/E) ratio based on estimated earnings for the year ahead.

But it's not too late for investors to cash in on the infrastructure rally. For starters, only a relatively small portion – roughly 20% – of the total money set aside in the spending bills has been spent so far. And these projects take time to get up and running. "We're in the middle of the third inning of the infrastructure trend. There's still a good way to go," Ma says.

The best infrastructure stocks to buy

Given the breadth of spending that the infrastructure bills cover, there are many ways for investors to cash in on the industrial renaissance. "You're seeing this wide array of project announcements – in the energy sector, in commercial infrastructure, public infrastructure, utilities," says Fidelity's Wagner. "It's multifaceted, which is different than other up cycles in industrials. It's not a play on one end market or one subindustry cycle."

We've highlighted seven companies, in a variety of industries, that we expect to benefit from infrastructure spending. Be patient with these investments. Some may win over the near term, but most may take time to pay off.

"We're not building these factories in days or months. They're going to take quarters and years," says Jason Adams, who runs T. Rowe Price Global Industrials fund. "There's still a lot of buildout to go." Returns and data for the investments below are through November 30, unless otherwise noted.

Aecom

Big construction projects need to be managed efficiently, and that's what Aecom (ACM) does. The infrastructure professional-services firm plays the role of maestro over the life of a building project. It also offers advisory, planning, design and engineering services – and more.

"Aecom is a high-quality, low-risk way to play secular growth in global infrastructure," says Truist Securities analyst Jamie Cook, who recommends the large-cap stock.

New contracts at home and abroad are flowing in. Roughly three-fourths of the company's business is stateside. In October, Aecom won a Texas Department of Transportation contract to provide design services for a segment of Highway I-45 in Houston. And in September, it agreed to manage the construction of a new terminal at San Diego International Airport, among other improvement projects there.

Another fourth of Aecom's business is overseas, and last fall it won separate contracts for services in water-supply programs in South Africa and the U.K., as well as a rapid-transport project in Bangkok to design tunnels and tunnel ventilation systems, among other things.

"We expect growing demand for environmental, road and water projects to provide the company's design and consulting service with a stable source of revenue," says Argus Research analyst John Staszak, who rates the stock a Buy.

The recent contract wins have helped boost shares 28% since the start of 2024. Yet the stock is still relatively inexpensive. It trades at 23 times expected 2025 earnings – a discount to other engineering and research-and-development services firms, which trade at a median P/E of 26, according to Zacks Investment Research.

Eaton

Electricity demand is expected to soar thanks to the use of artificial intelligence, reshoring efforts, and the growing adoption of electric vehicles and renewable energy.

"We expect electricity demand to double between now and 2050," says Bernstein Research analyst Chad Dillard. To put that in perspective, over the next five years, electricity demand could increase at an average annual pace of 1.7%, which is far faster than the 0.4% annual growth rate in demand over the past decade.

To keep up, utilities must upgrade their electrical infrastructure. Spending on electrical equipment could rise by as much as 3% to 7% per year, on average. As a result, electrical-equipment manufacturers such as Eaton (ETN) are poised to deliver double-digit earnings growth, says Dillard.

Eaton makes electrical systems and components for end users in multiple sectors and industries, including utilities, manufacturing, commercial and residential property, automakers, aviation, and technology. The company's broad array of customers makes Eaton a beneficiary of several megatrends, including the upgrade of America's power grid as well as the buildout of data centers. An aging airplane fleet amid a rise in air-travel demand is boosting orders for Eaton's aerospace equipment.

Shares have climbed 67% over the past 12 months, so don't expect a similar pop in 2025. But there's still upside left, says UBS Securities analyst Amit Mehrotra, whose 12-month price target for the stock, $431, represents a 15% gain from the current share price.

"We think the company can sustain high-single-digit revenue growth for several years to come," says Mehrotra – a respectable pace for a company with a $148 billion market value. The company's plan to buy back nearly $14 billion in shares over the next four years also bodes well for the stock.

And despite the runup, Eaton's stock isn't expensive relative to peers. Its P/E of just 31 is a tad below the machinery and electrical equipment industry and is justified by estimates of 12% earnings growth over each of the next three years – a smidge ahead of its peers. Still, we'd be on the lookout for lower entry points to pounce on the stock.

GE Vernova

GE Vernova (GEV) – an energy equipment and services company – was formed last year from the merger and then spinoff of General Electric's various energy businesses, including renewable energy, power, digital and energy financial services. The stock has been trading only since April 2024. (General Electric shareholders received one share of GE Vernova for every four shares of GE.) But given its provenance, GE Vernova is a powerhouse. Its natural gas and wind turbines generate roughly 30% of the planet's electricity, according to the company.

That puts the firm in position to gain from the world's rising demand for power. But GE Vernova is also a player in the transition to a larger and more sustainable electric power system. About $73 billion of the Infrastructure Investment and Jobs Act is pegged to grants that will encourage investment in energy efficiency, greenhouse-gas emission reduction and clean-energy technologies – and that's the stomping ground of GE Vernova's electrification business segment, which among other things is working to leverage AI to build a digital power grid.

It is possible that under President Trump, renewable energy may get less attention and money, which would be bad news for GE Vernova's electrification business. But William Blair Research analyst Jed Dorsheimer says Trump's nominee for Secretary of Energy, Chris Wright, is likely good news for GE Vernova's power-generation business, which is dominated by natural gas power and represents 40% of overall revenue. The reason: Wright is chief executive of Liberty Energy (LBRT), a fracking company. (Vernova's power business also includes hydroelectric, nuclear and steam power.)

GE Vernova's sky-high P/E of 50 is a negative, for sure. But "the Street is underestimating the company's growth potential," says Jefferies Financial Group analyst Julien Dumoulin-Smith. After a 7% climb in revenues in 2024, he expects sales growth to tick up 12% in 2025 and 9% in 2026.

All of the firm's three business segments – power, wind and electrification – seem poised to do well in 2025, he adds; its wind business has been a drag of late but is improving. For the company overall, Dumoulin-Smith estimates 40% average annual growth in earnings before income tax and interest over the next three years, due in part to pruning of the unprofitable wind business and big gains in its larger businesses, power and electrification. We'd still be choosy about entry points with this utility stock; it's best to buy on dips.

Rockwell Automation

A significant portion of the equipment in factories dates to the 1970s and 1980s and needs an upgrade, says Morningstar stock analyst Nicholas Lieb. That works in Rockwell Automation's (ROK) favor because the company makes equipment and software products that help factories automate their processes and operate more efficiently.

ROK's analytic software helped Kraft Heinz (KHZ) improve the operational efficiency of its Ore-Ida potato products facility in Oregon. From peeling potatoes to packaging the products, the system increased Ore-Ida's production capacity by 10%.

Rockwell also helps its customers maintain and update their systems. A dedicated phone line at a mill for International Paper (IP) is connected to Rockwell engineers to help monitor and troubleshoot operations. "Without this help from Rockwell, International Paper would be forced to hire another engineer," says Lieb, which could cost the company more.

But a slump in global manufacturing has weighed on Rockwell shares over the past 12 months. Elevated interest rates (and thus higher borrowing costs) made many of the company's customers cautious about spending on new equipment. At the same time, a surfeit of goods (a post-pandemic outcome following supply-chain challenges) prompted many manufacturers to pause production and wait for demand to catch up with supply. In its most recent fiscal year, which ended in September, Rockwell's revenues dipped by 9% and earnings by 20%. That drag could extend into 2025.

Rockwell hasn't been sitting on its hands. In the summer of 2024, the company announced plans to lay off 3% of its global workforce. It has been buying back stock, too. In 2024, it repurchased 2.2 million shares at an average price of $270. Even so, investors have been unenthusiastic, and the stock has gained just 9% over the past 12 months.

Though Rockwell shares are not expensive, they're not a screaming bargain either. The stock trades at 31 times earnings, which is on par with the stock's median P/E over the past decade. But for patient investors, Rockwell could pay off. Although a consensus of analysts expects earnings growth to contract by 2.5% in 2025 compared with 2024 levels, things will look up in 2026, when analysts project a 19% jump in profits.

United Rentals

Reshoring requires equipment to build things. But construction companies have been opting more and more to rent equipment rather than to buy and maintain it on their own, says Jason Adams, manager of T. Rowe Price Global Industrials fund. That puts United Rentals (URI), a rental company with a large and diverse fleet of construction equipment, in good shape to benefit from large infrastructure projects.

United is already busy. It has been supplying equipment for several large-scale construction projects, including a 131-acre entertainment and shopping complex in Miami that will feature a new stadium for the city's major-league soccer team. Smaller projects have been on pause, but as interest rates continue to fall, lower borrowing costs should spur more activity on that front, says Value Line analyst Nils Van Liew. And acquisitions of smaller companies that complement United's business could boost growth.

The catch: Shares are up 83% over the past 12 months. They currently trade at 18 times earnings – level with the rest of the building- and construction-products market, but ahead of the stock's 10-year historical P/E of 12. Shares could tread water while United digests recent gains.

Vulcan Materials

Vulcan Materials (VMC) is the leading rock quarry company in the U.S. That means as more liquid natural gas facilities, warehouses, battery plants and factories are constructed here, "Vulcan is going to sell a lot of rock to build the foundations," says Bruce Kennedy, a portfolio manager of DF Dent Midcap Growth. "Rock has been used to build roads since the days of Babylon," he adds. "And there are no other substitutes."

Vulcan makes money by selling crushed rock – and it pulls in even more to ship it. Many of Vulcan's quarries and distribution yards are near fast-growing metro areas of the U.S. (cities in Texas, North and South Carolina, and Florida, for example). New permits for quarries are hard to come by, which diminishes threats from competitors, giving the company both "pricing power and low obsolescence risk," says Kennedy. And Vulcan boasts a materials reserve of 69 years, at current levels of production.

According to Zacks, analysts expect average annual earnings growth of 14.5% over the next three years, better than the 9.6% pace the company recorded over the past five years. Kennedy expects earnings to jump 22.5% in 2025 compared with 2024. The stock trades at an above-market 32 times earnings, but that's in line with its 10-year historical P/E.

Xylem

The Infrastructure Investment and Jobs Act will provide $50 billion to improve our nation's drinking water, wastewater and stormwater infrastructure. It's the single largest investment in water the government has ever made, according to the Environmental Protection Agency. Xylem (XYL), a global water technology company, is primed to benefit because it makes equipment for water transport, treatment, testing and use.

Supply-chain bottlenecks have been a hurdle for Xylem of late, but its high-tech products, such as its smart water meters, have been in big demand, says CFRA Research analyst Jonathan Sakraida, who rates the stock a Strong Buy. When all the numbers are in, he expects them to show revenues jumped 16% in 2024 compared with 2023. That's ahead of the firm's five-year historical revenue growth rate of 12%.

"Xylem is benefiting from the digital transformation of the water business, with accelerating industry adoption of digital solutions," Sakraida says. Another boost will come from updated regulations on forever chemicals and other contaminants in drinking water.

We appreciate Xylem's environmental stewardship, and the stock has earned a place in the Kiplinger ESG 20, the list of our favorite stocks and funds with an environmental, social or corporate governance focus. But this pure-play water in-frastructure company deserves mention in a list of infrastructure beneficiaries, too.

Even so, the stock has been a bit "underappreciated" in recent months, says Sakraida, as investors realized that the allocation of Infrastructure Investment and Jobs Act funds would be more of a "slow burn" than "explosive" to the water company's sales and earnings growth.

Shares have climbed just 12% since the start of 2024. But that means they're a relative bargain. Xylem stock trades at 27 times expected earnings – well below the stock's five-year median P/E of 34, according to Zacks. Analysts expect annualized earnings growth of 13% over the next three years, or a tad better than the 12% growth rate logged over the past five years.

The best infrastructure funds to buy

Investing in individual stocks can be rewarding, but some investors may prefer to diffuse the risk by investing in several companies via a focused infrastructure fund. Here are our favorites.

Global X U.S. Infrastructure Development (PAVE) is an exchange-traded fund that offers broad exposure to companies involved in "the nuts-and-bolts buildout of bridges and roads, as well as to companies that play a role in electric-grid enhancements and even companies that rent out equipment," says chief investment officer of BMO Wealth Management Yung-Yu Ma.

The index fund boasts a robust, 22.1% annualized return over the past five years – the top return of all infrastructure funds. Trane Technologies (TT), Parker Hannifin (PH) and Eaton are the fund's top holdings. It charges a 0.47% expense ratio.

Invesco Building & Construction ETF (PKB) holds only building and construction companies, as its name implies, and fund-tracker Morningstar classifies it as an industrials sector fund. Compared with Global X U.S. Infrastructure Development, its portfolio is more concentrated (30 stocks), and it charges a higher expense ratio (0.57%). But its five-year annualized return of 21.1% beat 93% of its industrial-fund peers.

One-third of the portfolio is devoted to homebuilder stocks, including Lennar (LEN), NVR (NVR) and PulteGroup (PHM), which Global X U.S. Infrastructure Development doesn't own. Even so, the two ETFs share some of the same top holdings, including Trane Technologies, Martin Marietta Materials (MLM) and Argan (AGX).

We have our eye on Fidelity Infrastructure (FNSTX), though the fund is relatively new; it launched in November 2019. The 48-stock portfolio includes a slug of industrials (Waste Connections (WCN), Norfolk Southern (NSC)), utilities (NextEra Energy (NEE), Southern (SO)), real estate firms (American Tower (AMT)) and energy stocks (Williams Companies (WMB), Targa Resources (TRGP)).

But the fund's global focus – 23% of assets are invested in foreign stocks – has been a drag. Over the past five years, Fidelity Infrastructure has delivered a 9.1% annualized return. That was not as remunerative as some of the other funds mentioned here, but it beat the typical infrastructure fund. The fund's expense ratio is 0.95%.

Other industrials sector funds to consider include THE Fidelity MSCI Industrials ETF (FIDU); the Industrial Select Sector SPDR ETF (XLI); and the Vanguard Industrials ETF (VIS). All boast low fees and five-year annualized returns of better than 13%.

Finally, though Fidelity Select Industrials (FCYIX) manager David Wagner is relatively new, the fund has returned a cumulative 49.6% since he took over in mid-2023 – better than the 36.8% gain in the S&P 500 Industrials Sector index over the same period. The fund charges 0.69% annually.

How Trump could impact infrastructure spending

Generally, most market watchers expect infrastructure spending to continue apace under President Trump. "Historically, spending money on roads, public works, airports, ports and harbors, and various parks has been something that Democrats and Republicans agree on," says Bruce Kennedy, manager of DF Dent Midcap Growth fund. "Representatives like to go back home for a ribbon cutting."

Indeed, changes to any of the three major infrastructure acts – the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act and the CHIPS and Science Act (both passed in 2022) – will likely be line by line, not a wholesale repeal, says Jake Schurmeier, a Harbor Capital manager of multi-asset portfolios. "Trump is a populist, and 60% of the spending under these acts goes to Republican states, so it isn't in his interest to cut back on spending," he adds.

The $280 billion CHIPS and Science Act passed with a lot of bipartisan support, too. "I expect by and large that will be untouched," says Schurmeier. About $55 billion has been spent, with Intel (INTC), Micron Technology (MU), Taiwan Semiconductor Manufacturing (TSM) and Samsung having received some of the funds.

Most at risk are the environmental tax credits in the $400 billion Inflation Reduction Act. Even so, Republicans will likely "take a scalpel, not a sledgehammer," to the IRA, says John Duncan, a principal with the Meridian Research Group, which provides insight on public policy to investors and corporations. Among the credits likely to go on the chopping block is the $7,500 credit for buyers of new electric vehicles, as well as tax credits for companies that generate clean power (solar, wind) or that develop clean energy technologies.

Finally, Trump's America-first agenda means his administration "has a clear interest in building out America and building up America," says Bob Robotti, founder of Robotti & Company Advisors. Whatever your politics, that bodes well for infrastructure spending and the stocks that will benefit from it.

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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The recent bull market has been minting thousands of new millionaires each week, opening doors for those investors to new opportunities — and risks.

Today, more than 16 million American households, nearly double the number from a decade ago, have passed an important milestone set by the Securities and Exchange Commission (SEC).

The securities regulator deems any investor, individually or with a spouse, with a net worth of $1 million (excluding their primary residence) an accredited investor.

That means in addition to the stocks, bonds and funds that all investors can buy on public exchanges, the investor can also invest in certain private investments, including hedge funds, private equity, private credit and venture capital opportunities.

(You can also qualify as an accredited investor under other criteria, including income thresholds — a consistent annual income of at least $200,000 for a single person, or $300,000 for a married couple.)

The attraction of the expanded opportunities is fatter returns and improved diversification. Some private investments have outpaced the U.S. stock market over the past five years. But the risks are higher, too. These investments don’t trade on public exchanges, and they aren’t publicly marketed or sold. And unlike publicly traded companies and funds, they aren’t required to publish regular financial statements.

The SEC established the accredited investor threshold to protect investors with limited financial knowledge from risky ventures. So investors who meet the standard are considered financially sophisticated enough to assess the merits of an investment on their own. But even professional investors have been burned by private investments. That’s why wealth managers tell accredited investors to tread carefully.

“You now have access to more than the average Joe,” says Jonathan Lee, a U.S. Bank wealth management adviser. But “just because new opportunities are available does not mean they are suitable” for you, he adds.

Buyer beware. Accredited investor status is not an “open sesame” to all private investments. It’s just the first step up the SEC’s ladder.

More investing opportunities are unlocked for qualified clients, who have $1.1 million in assets with an adviser or a $2.2 million net worth (excluding a primary residence); qualified purchasers, with investment portfolios of at least $5 million, can access even more.

Whether you’re qualified or accredited, proceed cautiously if you buy into a private investment. Be skeptical of pitches from brokers seeking commissions, internet personalities or even friends. Though many private investments are available only to qualified investors, you may be offered a wider set of opportunities if you’re accredited and you work with an adviser.

Put in only what you can afford to lose — and certainly no more than 5% of your portfolio, says Prudence Zhu, a certified financial planner based in Phoenix. Be aware, too, that often the best deals are first pitched to investors who can fork over a seven-figure sum, Zhu says. Small investors tend to get offers the wealthy have passed on and thus may be riskier.

You may need to provide proof, in the form of account statements or tax returns, that you meet the SEC’s accredited investor bar before you invest. And it can be difficult or even impossible to cash out for many years. There may be hidden costs, too. Many private investments require that you fill out a Schedule K-1, which can complicate and raise the cost of preparing tax returns.

Private investments aim to boost your overall return or enhance diversity and smooth out the overall ride of your portfolio. But each comes with certain caveats.

Hedge funds. These aim to deliver positive returns in both bull and bear markets. The funds use a variety of tactics. Long-short strategies, for instance, buy stocks that are expected to rise in value and sell short stocks that are expected to fall in value.

Hedge funds tend to be less volatile than the stock market; the Credit Suisse Hedge Fund index held up better than the S&P 500 index in 2022. The trade-off is tepid returns. Over the past decade, the Credit Suisse index has returned 4.4% annualized.

Most opportunities are limited to qualified investors by SEC mandate and charge a 2% annual management fee plus 20% of any gains. In addition, some of the few private hedge funds available to accredited investors require $100,000 minimums.

Private credit. Private credit includes loans made to companies that can’t, or prefer not to, borrow from a bank. Since the start of 2019 through mid-2024, this asset class has returned 9% annualized, according to market data firm MSCI, beating the Bloomberg Aggregate Bond index, which gained 0.9%. But some private loans aren’t rated by credit agencies, adding a layer of risk. And they’re not easily traded, so you might have to wait until the loan matures to get your money back.

Many private credit funds are limited to qualified purchasers. But accredited investors may be able to participate through their adviser or a growing number of online platforms such as YieldStreet and Percent.

Private equity. Accredited investors can invest directly in private companies or in private funds, available through advisers, that pool stakes in several private firms. Private equity fund managers typically buy businesses, often combining investors’ money with loans against the assets of the business. They attempt to improve the profitability of the business and then sell off the parts or the whole to make money. The fees run about 1.5% a year, and many managers take a piece of any profits, too.

Returns have been rich of late. Private equity funds gained 22% annualized between 2019 and mid-2024, according to MSCI, compared with a 17% annualized rise in the S&P 500. But some private equity deals don’t work out. And many private equity funds bar withdrawals for months or even years and limit, or “gate,” the percentage of shares they will redeem to shareholders each year.

Investors may learn about private equity opportunities from friends, online platforms or advisers. Funds run by big private equity firms, such as Apollo or Blackstone, are typically available only through advisers.

Venture capital. These investments finance start-ups, typically, to help them develop or roll out new products or services. The goal is to hold on until investors earn a return, which can occur if the company is acquired or goes public. But most burgeoning businesses fail before either occurs.

Venture capital returns have been volatile recently. After notching better than 50% annual returns in 2020 and 2021, VC funds lost ground in each of the next two years, according to MSCI. And through June 2024, the most recent date for which data is available, VC funds are up just 1.0%.

Accredited investors can participate in a VC fund-raising round, but in most cases, they must have the right connections—for instance, as “friends or family.” Otherwise, crowdfunding online platforms, such as Republic and StartEngine, offer accredited investors access to VC opportunities for as little as $100.

Some advisers may also offer access to VC funds, though many require six-figure investments.

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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A debt crisis is brewing in Africa. The continent's debt obligations – which topped $1 trillion at the end of 2023 – could compromise future economic growth, according to the African Development Bank. And in recent years, a handful of countries, including Ghana, Zambia and Ethiopia, have defaulted.

This news prompted us to check in with the Vanguard Emerging Markets Bond Fund (VEMBX) – a member of the Kiplinger 25, our favorite no-load mutual funds.

Managers Dan Shaykevich and Mauro Favini invest mostly in dollar-denominated government debt issued in developing countries. At last report, the fund held 13% of its assets in African IOUs. That's a greater percentage than in the fund's benchmark, the JPMorgan Emerging Markets Bond index, but less than that of the fund's typical peer.

The managers are not worried, though. Despite the hefty debt burden in Africa overall, defaults in African sovereign bonds so far have been small in size relative to the benchmark, says Favini. And the "overall asset class of dollar-denominated emerging-markets debt hasn't experienced material drawdowns or contagion,” he says.

Meanwhile, the fund is still outpacing its peers. Over the past 12 months, it returned 14.4%, beating 65% of other emerging-markets bond funds. A "cautious" positioning heading into 2024 contributed to the fund's performance over the past year. The managers took profits in their "down-in-quality" holdings, for instance.

Making the right macroeconomic calls in 2023 helped, too, says Favini. Among them: Bumping up the fund's duration, a measure of interest rate sensitivity, to 6.5 years from 3 years. Bond prices and interest rates move in opposite directions, so a duration of 6.5 years implies that if rates fall by one percentage point over the course of one year, the fund's net asset value will rise by 6.5%. Over the past 12 months, some emerging central banks, including China, Brazil and Mexico, have cut interest rates. The fund yields 6.4%.

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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Context is everything. For more than a year now, a handful of companies – some of which don't pay a dividend – have fueled gains in the stock market, leaving funds that don't hold those companies behind. 

That goes a long way to explain why the T. Rowe Price Dividend Growth Fund (PRDGX) – a member of the Kiplinger 25, our favorite no-load mutual funds – has lagged the S&P 500 over the past 12 months. 

The fund owns Microsoft (MSFT) and Apple (AAPL), but not Nvidia (NVDA), Alphabet (GOOGL) or Meta Platforms (META), three of the biggest gainers over the past year. "It's been a tough relative period for anyone who's an income-oriented investor," says the fund's manager, Tom Huber. "But on an absolute basis, the fund has done well." Dividend Growth has gained 16.3% over the past 12 months; the S&P 500, 21.5%. 

Increasing dividends matter more than yield at this fund. Huber favors large, competitively positioned firms that generate cash and have a goal to increase payouts over time. The fund's overall average dividend growth rate, 9.8% over the past 12 months, exceeds that of the S&P 500, which typically ranges between 5% and 7%, says Huber. 

High interest rates have also been a hurdle for this dividend-stock fund; investors can earn fatter yields in money market funds. But rates are likely to fall in the coming months, which may turn investor attention toward dividend stocks again, says Huber. 

Meanwhile, Huber is nibbling in discounted sectors, including consumer staples, energy and healthcare. Coca-Cola (KO) is a "quality company," he says, "that trades at a price-earnings multiple you haven't seen in a really long time." 

And since the collapse of oil prices during COVID, many energy stocks, including Conoco-Phillips (COP), yielding 2.9%, and Exxon Mobil (XOM), yielding 3.2%, have become smarter about how they spend their extra cash. He's also a fan of discount retailer Dollar General (DG), which is benefiting from consumers seeking relief from higher prices.

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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For the first time in at least 15 years, new investors can buy shares in two of Vanguard’s best-regarded actively managed mutual funds. In June, Vanguard fully reopened Vanguard Primecap (VPMCX) and Vanguard Primecap Core (VPCCX). Both funds are run by Primecap Management, described by Jeff DeMaso, editor of The Independent Vanguard Adviser newsletter, as, “arguably, one of the best active managers out there.” 

Vanguard locked new investors out of Primecap in 2004 and out of Core in 2009, limiting existing investors to adding no more than $25,000 a year. The funds’ strong performances had attracted more money than the managers felt they could put to work in the long-term, value-priced growth opportunities they seek.

But in recent years, performance — especially at Primecap — has been lumpy. Investors have withdrawn more than $38 billion from Primecap since 2019 (leaving it with assets of $76.1 billion), and nearly $5 billion from Core (now with $13.2 billion). And, says Ryan Barksdale, who oversees Vanguard’s active stock funds, “the market has evolved,” creating new investment opportunities for additional cash. Both funds require a minimum initial investment of $3,000 for investor-class shares.

The two funds hold many of the same stocks. Both are tilted toward health care and industrial firms, and have benefited from a boom in Eli Lilly, which makes up more than 10% of each portfolio. Lilly has returned 94% over the past 12 months. 

Although it can invest in stocks of any size, Primecap is currently weighted slightly more toward large companies. Charging an expense ratio of 0.38%, it has returned 27.5% over the past 12 months, beating the 24.6% return of the S&P 500. The fund gained 15.5% annualized over the past 15 years, compared with 14.8% for the S&P 500. Core, with expenses of 0.46%, has returned 25.4% over the past year; 14.7% over the past 15 years.

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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As with any underdeveloped technology, artificial intelligence (AI) is an investment option that offers high potential returns as well as plenty of risks. It’s easy to get swept up in the moment and jump on the AI bandwagon. That might be a recipe for short-term success (if you time your buy-in right), but given enough time, it will ultimately lead to failure.

If you want your AI investing to pay off over the long term, you need to have a solid understanding of your options before allocating any of your resources. You want to study the industry, your investment avenues and key considerations such as illiquidity and creditworthiness.

Let’s explore the unfolding world of AI and how to make informed decisions as you invest through mutual funds, exchange-traded funds (ETFs) and individual companies.

Recognizing AI's investment allure

Let’s start with the obvious: AI is exciting. Its allure is drawing billions of investment dollars — and with good reason. AI is the real deal. AI is rapidly transforming industries, and the investment world is no exception.

In my time working at the Fintech Finance Group, we’ve never seen an industry-changing technology with quite this degree of potential. From composing text and making personal suggestions to driving the Fourth Industrial Revolution, this technology is touching every part of life as we know it.

As an investor, it’s easy to see how this exciting new frontier offers significant potential returns. As AI technology continues to disrupt markets, its near-limitless utility means it may be a good time to invest in this growing area. 

With that said, investors should remember that AI is a relatively young field — and as is the case with any fledgling market, there are inherent risks involved. That means you want to make informed investments, maintain exit strategies and remember to stay diversified.

Considering AI investing avenues

Believe it or not, Nvidia (NVDA) isn’t the only AI company out there. I kid, but I hope you see the point. There are multiple ways you can gain exposure to AI’s profit potential in your investment portfolio, and at this point, many of these alternatives may have more upside than Nvidia and its bloated market value.

The obvious avenue here is to invest directly in publicly traded companies. Yes, Nvidia is one of these. But there are many other AI-focused brands, such as Microsoft (MSFT), Alteryx (AYX) and Palantir (PLTR), that are applying bleeding-edge AI technology in a variety of industries and functions.

In theory, each of these has the potential for high returns. However, you want to conduct in-depth research with every company to understand their market position and what sets their technology apart. Consider how established they are and how each company’s risk level affects your portfolio’s overall stability.

You can also invest in AI using ETFs and mutual funds. These represent collections of AI-related companies, naturally spreading out both risk and reward. This provides a lower barrier to entry for investors with less capital and can make it easier to “set and forget” your artificial intelligence investments for the long term.

Going beyond the headlines

Along with each individual investment channel, you want to consider the nuances of AI investing currently. For example, illiquidity is particularly relevant to private company investing. 

How easily can you sell the shares of each AI company that you invest in? If they’re publicly traded, this could be no issue. If you’re an angel investor or venture capitalist getting in on the action early, though, you may have a tougher time exiting a position.

You also want to evaluate creditworthiness if you’re directly loaning money to AI startups and smaller companies. Is there a clear timeline for the borrower to eventually repay the loan (with all due interest)?

Making informed decisions

If you want to invest in AI successfully, you must grasp both the potential reward and the inherent risk that comes with each opportunity. Do your research. Stay aware of your risk tolerance. Make sure your portfolio stays diversified. Keep your investment goals top of mind.

If you find your portfolio is lopsided, or you aren’t sure about the risk-reward of an AI investment opportunity, remember to consult with a qualified financial adviser. They can provide insights that are particularly invaluable when you are venturing into new investment territories such as the promising but precarious AI revolution.

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Past performance may be no guarantee of future results, but as any good detective knows, there’s no such thing as a coincidence. In the same way, there’s something to be said for a mutual fund with a good track record, especially over the past decade. The past 10 years included two bull markets, two bear markets, high inflation and a record rise in interest rates — oh, and a global pandemic, too. 

For that reason, we set out to find the top-performing actively managed funds over the past 10 years in each of the nine stock fund style categories defined by Morningstar. The financial data firm divides funds into those focused on growth, value or a blend of the two, invested in large-, small- or midsize-company stocks. 

Our final list includes funds that employ a variety of strategies, which we highlight below. We didn’t originally intend to exclude index funds, but frankly, few rose to the top — except in the large-company growth category (which includes funds that track the Nasdaq 100 benchmark and so happen to be stuffed with the tech behemoths that have dominated the market lately). Given the slim showing, we decided to focus on actively managed U.S. stock fund winners. 

These aren’t the top performers in every category. We only considered funds that are open to new investors, require reasonable minimum initial investments and have had at least one manager in place for the entire decade. That eliminated some standout funds with newer managers, including Fidelity OTC, T. Rowe Price U.S. Equity Research and Parnassus Value Equity (formerly known as Parnassus Endeavor). 

Most of the funds have above-average expense ratios, and a few are load funds (but all are available with no transaction fee or sales charge from major brokerage platforms). It’s important to note that a place on this list does not equal a Kiplinger recommendation.

Still, funds that owned the decade deserve looking into. Read on to learn more about the winners, listed in alphabetical order within their fund categories. All data and returns are through May 31, unless otherwise noted. 

Large-company stock funds

Fidelity Blue Chip Growth (FBGRX). Since Sonu Kalra took over management duties at Fidelity Blue Chip Growth in mid 2009, he has steered the fund to an 18.8% annualized gain, handily beating the S&P 500 index and peer large-company growth funds. His fund’s 10-year annualized return, a whopping 17.5%, topped all the other portfolios highlighted in this story, too. By comparison, the S&P 500 gained 12.7% annualized. The fund charges a low, 0.48% annual expense ratio.

Kalra aims to invest in companies that can sustain healthy growth rates for long periods of time. He likes to get in early and hold. Most of the fund’s 260-stock portfolio is made up of companies that he says are beneficiaries of long-term growth themes, such as e-commerce, cloud computing, generative artificial intelligence, and health and wellness. Most of the fund’s top holdings fall in this secular-growth category, including Amazon.com (AMZN), Alphabet (GOOG) and Apple (AAPL), and they have been in the portfolio for well over a decade. “That’s a sign we’re doing our job well,” Kalra says. 

Much of rest of the portfolio is devoted to companies with shares that might be flagging but are poised to benefit from a cyclically driven growth phase (energy stocks during COVID, say, or housing stocks when that industry is in a slump). A smaller group, which Kalra calls “self-help stories,” are businesses with a new manager or product (think of a retailer, for instance, with a growth driver that’s underappreciated). 

But the fund’s stake in private companies sets Blue Chip Growth apart. They make up just 3% of the fund’s assets, but, Kalra says, “the private placements allow me to build a relationship with a company years before it goes public. So by the time it does, I have conviction on whether to buy it or not.” He owned a small stake in Facebook, now Meta Platforms (META), before it went public in 2012. After its IPO, the stock lost half its value, but Kalra bought more shares because he had confidence the company would do well, especially after it enhanced its smartphone app to boost advertising revenues. Meta stock, now a top-10 holding, has increased an average of 23% per year since its IPO (a 12-fold climb from its opening price).

Natixis U.S. Equity Opportunities (NEFSX). Two subadvisers divide the assets in this large-company stock fund. Roughly half of the fund is run by the folks who manage the vaunted Oakmark value fund, namely Bill Nygren, Michael Nicolas, Robert Bierig and Michael Mangan at Harris Associates. A growth-tilting stock-picking team from Loomis Sayles, led by Aziz Hamzaogullari, manages the other half of the assets. The end result is a large-blend fund. 

Over the past 10 years, the fund’s 13.1% annualized return outpaced the S&P 500. But in truth, the fund’s performance has been spotty. U.S. Opportunities has lagged the benchmark in six of the past 10 calendar years (2022, 2021, slightly in 2019, 2018, 2016 and 2014). Average returns with high risk are characteristic of the past three years, according to Morningstar. It’s reason to be a bit wary of this fund. Its annual expense ratio, 1.09%, ranks above average for its category. 

Value guru Nygren and his team aim to purchase shares in large-capitalization companies that trade at least 30% below the team’s estimate of the companies’ intrinsic value, or true business value. But growth can be a value in their book. Meta Platforms (META) and Alphabet (GOOG), for instance, were among Nygren’s holdings at certain points over the past decade. “The opposite of cheap isn’t growth,” Nygren is famous for saying; rather, “it’s expensive.” The track record of Nygren’s Oakmark fund, which is run in a manner similar to the way he runs his portion of this Natixis fund, ranks among the top 3% or better of its peer group (large-company value funds) over the past five, 10 and 15 years.

Meanwhile, Loomis Sayles’s Hamzaogullari and his team run their portion of U.S. Equity Opportunities using a seven-step process that targets companies that have high barriers to entry or a competitive edge in their industry, throw off plenty of cash, and have good executives at the helm who have the long term in mind (not a quarter-to-quarter mind-set). Also, price matters: Hamzaogullari is only interested in purchasing shares if the company’s stock trades below his estimate of the company’s intrinsic value. Hamzaogullari is also behind Loomis Sayles Growth fund, which ranks in the top quartile of large-company growth funds over the past three and 10 years. Nvidia has been a top-performing pick for the Loomis half of U.S. Equity Opportunities over the past year. 

Smead Value (SVFAX). Value stocks have been out of fashion for most of the decade, which makes Smead Value’s 12.0% annualized 10-year return notable. That doesn’t outpace the S&P 500, but the large-company value fund ranks among the top 1% of its peers, despite a high annual expense ratio of 1.24% (above average for its category). 

Its secret? “We’re probably dead wrong 30% of the time, so we spend a lot more time trying to figure out where we were wrong than where we were right,” says longtime manager Bill Smead, who has an impressive memory for historical market data. He runs the fund with his son, Cole.

Over the years, they’ve learned from their mistakes. One thing they’ve found is that it pays to hold on to winners. Besides the low cost of an index fund, “the S&P 500 has an advantage over active stock pickers: low turnover,” says Smead. S&P 500-trackers “hold their winners to a fault.” So he does, too. Smead first bought stock in biotech firm Amgen (AMGN) in 2011, for instance, when it traded at $52 a share and a price-earnings ratio of 11. “Today, it’s a $300 stock and has paid out massive dividends,” he says. The fund’s typical holding period is about seven years. 

Companies in the portfolio must fulfill an economic need, have a strong competitive advantage in their industry and a long history of profitability, generate high levels of free cash flow (money left over after expenses to operate and invest in the business), and trade at a low price relative to their intrinsic value. Top holdings include American Express (AXP) (which Smead describes as “the Mother Teresa of financial firms”), Occidental Petroleum (OXY) and Merck (MRK).

The portfolio’s 28 stocks trade at an average P/E of 14 and boast average cash-flow growth of nearly 12%. Compare that with the S&P 500’s average P/E of 21 and cash-flow growth of 9%. “Our companies are superior to the S&P 500, and you’re getting them at a bargain to the S&P 500,” he says. With his portfolio holding none of the enormous companies that currently dominate the market, Smead calls his fund the “antidote” to the problem of mega-cap concentration in the S&P 500. 

Mid-size company stock funds

Baron Focused Growth (BFGFX). “Our favorite holding period is forever,” says David Baron, who runs the Focused Growth mid-cap growth fund with his father, Ron Baron. They like to invest in growing businesses that they believe can double in market value within five to seven years. The Barons typically keep the portfolio to a trim 20 to 30 stocks, getting in early when companies are small to midsize—the younger Baron says this is “a SMID fund”—and holding on as long as their investment thesis still stands. Stocks in small and midsize firms make up three-fourths of the fund; large stocks account for 11%.

Focused Growth currently holds 34 stocks. That’s higher than usual, says David, because the fund had 10% of assets in cash about 18 months ago that the Barons have since put to work in a stack of new opportunities, including sneaker company On Holding (ONON) and Spotify Technologies (SPOT). 

The fund’s 10-year annualized return of 15.3% ranks among the top 2% of mid-cap growth funds—beating its benchmark, the Russell 2500 Growth index, which gained 9.4% annualized, as well as the S&P 500. But from the start of 2014 through 2016, Focused Growth lagged its peers in a big way, thanks in part to Tesla (TSLA), which was teetering toward bankruptcy then. “That was a tough time in the market,” says David. “We’re okay not making money in stocks for two to three years. As long as we can get the double in four to five years, we’ll continue to invest in the stocks if they’re trading at attractive prices.” Tesla is the top holding in the fund today. “Musk’s balance sheet has no debt, and he’s sitting on $28 billion in cash—and that’s after spending $10 billion this year on capital expenditures,” David says.  

In other words, the Barons are willing to be patient with Tesla. Other times, however, they’re inclined to sell. The pair owned Penn National Gaming (now Penn Entertainment (PENN)) in the early 2020s, but a couple of acquisitions left the balance sheet with too much debt, David says, and the firm was “spending in the wrong places.” They unloaded their stake in 2023. 

Baron Focused Growth has outpaced its peers and its benchmark in six of the past 10 years. Volatility is high, though aggressive investors may find the rewards worth the risk. The fund’s expense ratio is 1.32%, above average for its peer group.

Diamond Hill Select (DHTAX). Small- and midsize-company stocks dominate the portfolio of Diamond Hill Select, but the fund can invest in companies of any size. Its benchmark is the Russell 3000, which tracks about 96% of the investable U.S. stock market (the S&P 500 covers 80%). 

Austin Hawley and Rick Snowdon have run the fund since 2013. They call themselves “intrinsic value investors,” which means they like a good bargain, but they also consider a firm’s growth prospects, too. (Morningstar currently classifies the fund as mid-cap value.) When big tech names sold off in early 2022, Hawley and Snowdon picked up stakes in Microsoft (MSFT), Alphabet (GOOG) and Amazon.com (AMZN). Those moves helped the fund deliver a 30.2% gain in 2023, beating the Russell 3000 and the S&P 500. The managers sold their stakes in Alphabet and Microsoft at different points in 2023 as those share prices moved up significantly, but they still own Amazon. 

The fund is trim (hence the “Select” part of its name), holding just 28 stocks at last report. That may explain why it has been more volatile than other midsize-company funds over the past 10 years, though its returns have made up for the added risk. Over the past decade, its annualized return of 10.8% didn’t beat the broad market, but it outpaced 97% of its peer group. For context, the Russell 3000 gained 12.1% annualized over the same period. And the fund’s five-year annualized return even surpassed the S&P 500. Its greatest hits over the past decade include mortgage-servicing company Mr. Cooper (COOP) (formerly Nationstar Mortgage Holdings) and Wesco International (WCC), a leader in electrical, communications and utility distribution. 

Investors should note, however, that the fund’s Morningstar style classification tends to shift. Select has been in Morningstar’s mid-cap value category since the start of 2021, but between 2015 and 2020 it was considered a large-cap blend fund, and in 2014 it was called a large-cap value fund. “I don’t think there’s a good peer group for the fund, and that’s a challenge for a strategy like ours,” says Hawley, who adds: “We believe it’s a benefit to have an all-cap universe. It allows us to capitalize where we see the best opportunities.” The fund charges an above-average fee of 1.16%.

FAM Dividend Focus Fund (FAMEX). Paul Hogan, the founder of FAM Dividend Focus, likes to take the long view: “We really think in terms of decades when we pick businesses for the fund.” One of the mid-cap blend fund’s original holdings from its launch in 1996 is still in the portfolio, and a number of holdings go back to the early 2000s. 

As the fund’s name implies, dividends are key. Every company in the fund pays one. But a high yield isn’t the focus. “That dividend has to be growing,” says Hogan, who took on a comanager, Will Preston, in 2020. “We want to see a history of dividend growth and that it will continue to grow at a good clip.” 

If a company cuts or stops paying its dividend, that’s an “automatic disqualifier,” says Preston. “We’re not going to own that stock anymore.” But if the payout remains steady for a year or so, that’s okay. For the 12-month period ending April 25, 23 of the fund’s 26 stocks increased their dividend, by an average of 9%. 

Of course, other measures matter, too, when Hogan and Preston pick stocks. They’re looking for company access (they visit every company they own at least once a year), ethical managers, and a high and increasing rate of return on the capital invested in the business (a profitability measure known as return on invested capital). Among the many other factors the managers consider when they assess a company’s quality are whether the chief executive knows most of the employees by name and whether the executive team is willing to take a pay cut to keep the factory going during a global pandemic.

Companies have to be midsize at the time of purchase, as defined by the Russell Midcap index (its current average market value is more than $26 billion), but Hogan and Preston let their winners run. “The fund’s best performers grow to be the largest holdings in the fund, and that’s the largest source of our outperformance versus peers and the index,” says Hogan. The average market value of the fund’s top holdings, for example, is $48 billion. Trane Technologies (TT), the HVAC system company, has a $74 billion market value and has been in the fund since 2015; medical-equipment maker Stryker (SYK), with a $126 billion market value, dates back to 2009. 

Resisting the urge to trim winning stocks “leads to low fund turnover and low taxes,” says Hogan. It helps keep a lid on risk, too. Over the past three, five and 10 years, FAM Dividend Focus has delivered well above-average returns with below-average volatility. “You’re taught in business school that if you want high returns you have to take on high risk, but that’s not the case with this fund at all,” says Hogan. 

The fund’s 11.6% annualized return over the past decade ranks among the top 5% of all midsize-company blend funds. That’s net of expenses, which are 1.22% per year—above average for its peers. And its 10-year record beats the 9.5% return in the Russell Midcap index, too. Even more impressive, the fund has outpaced its peer group in nine of the past 10 years. “These results are repeatable for us because we’re not chasing an economy reopening story, or interest-rate cuts or interest rates going up,” says Hogan. “We don’t have to do that. We simply own quality companies where customers have to or want to do business with.”

Small-company stock funds

Hennessy Cornerstone Mid Cap 30 (HFMDX). This fund has the term “Mid Cap” in its name, but it skews small, with an average market value for stocks in the fund of $5.4 billion. The managers of this small-cap value fund use four simple steps to choose 30 stocks. 

The aim is to buy undervalued companies with proven sales and earnings growth. The process starts with company size—only companies between $1 billion to $10 billion in market value are considered—and a price-to-sales ratio of less than 1.5. Next, annual earnings must be higher than the previous year (the companies don’t have to be profitable, but earnings must be trending in a positive way), and shares must have posted a positive gain in price over the past three and six months. And that’s basically it. 

The four-step process whittles a list of about 5,000 down to roughly 100, which are then ranked by 12-month returns. The top 30 become the portfolio. The fund’s assets are equally divided into the 30 names, and then the managers leave the portfolio alone for a year, rebalancing typically in the fall. “We try to only have long-term gains whenever possible,” says Ryan Kelley, who manages the fund with Neil Hennessy and Joshua Wein.

It’s a simple process that has not changed over the fund’s 21-year history. The results? A 12.2% annualized gain since inception in 2003, which beats the small-cap benchmark, the Russell 2000, as well as the S&P 500. Over the past decade, the fund boasts a 12.2% annualized return, shy of the S&P 500’s gain but ahead of the 7.7% average annual gain in the Russell 2000. “The reason we like this process is that it takes the emotion out of investing,” says Kelley. The fund’s expense ratio, 1.34%, is above average for its peer group.

Needham Aggressive Growth (NEAGX). Small-company stocks are the focus at Needham Funds. “It’s all we do. We live and breathe these companies,” says John Barr, longtime manager of small-company growth fund Needham Aggressive Growth. 

Barr focuses on under-the-radar companies that are investing in a new product or service that’s poised to boost the firm’s results. To provide stability, he says, the company’s new endeavor must be funded by a legacy or established business that’s profitable or generating cash—not by debt. 

Over the past decade, that process has delivered chart-topping returns to shareholders. The fund’s 10-year annualized return, 15.3%, walloped the Russell 2000 small-company index, as well as the S&P 500. 

The ride has been bumpy, but that’s a given—small-cap stocks tend to be more volatile than their larger brethren. It’s worth noting, however, that Needham Aggressive Growth has been a tad less volatile than the typical small growth fund, as well as far more rewarding. 

Taking the long view and holding on to winners past the small-cap stage is part of Barr’s game. “The challenge is just to hold on and not sell,” he says. He’s drawn to firms run by founders, families or long-tenured executives “because they think long term,” he says. The fund owns shares in nearly 80 companies and typically holds for eight to 10 years. Its top holding, Super Micro Computer (SMCI), has been in the fund since 2009 and is a “100-bagger for us,” Barr says. 

He likes to get in early, buying stakes in promising, mostly micro-cap-size companies he calls “hidden compounders.” If successful, they shift into what Barr calls the “transition compounder” stage, when the company’s new venture starts to impact results. Eventually, good companies grow into “quality compounders,” or leaders in established—but growing—markets. Half of the hidden compounders make it to the transition stage, and then only about 20% become quality compounders. 

Among many memorable winners over the past decade are two semiconductor industry players, Nova (NVMI) and Entegris (ENTG), both longtime holdings that are still in the portfolio. Each has climbed more than 11-fold in price over the past decade. Barr remembers some losers, too, such as Dirtt Environmental Solutions (DRT), a Canadian maker of premanufactured walls and systems for the construction market. He bought shares in 2017 then watched the stock tank, selling in 2020 at roughly a 60% loss.  

Small-cap stocks have lagged the broad market over the past decade, but “there are small caps out there that have done well and continue to do well,” says Barr, adding that he’s found success in part by focusing on firms with good balance sheets that throw off cash, operating in steady businesses that are less vulnerable to the whims of the consumer. The fund’s annual expense ratio, 1.82%, is well above average for its peer group. 

Thrivent Small Cap Stock (TSCSX). To avoid value traps, or stocks that are cheap because they deserve to be, the managers at Thrivent Small Cap Stock give prospective companies what fund comanager Jim Tinucci calls the “APGAR test,” the name for the health screen that newborn babies receive just after birth. But instead of gauging skin color, muscle reflexes and heart rate, Thrivent’s small-company test focuses on industry and company growth, competitive advantage, size of the total market that the company attempts to address, and whether key profitability yardsticks measure up. 

Firms that fail the test don’t get a closer look. “Value traps are companies in industries that don’t grow and are already fully penetrated,” says Tinucci, who manages the fund with Matthew Finn and Katelyn Young. “So, in our first look, we’ll know if this is a business we want to do further work on or not.” When they invest in a stock, its market value must fall at or below that of the largest firm in either the Russell 2000 ($49 billion in late April) or the S&P SmallCap 600 index ($8 billion).

Something about the manager’s APGAR test for small companies is working, because this small-cap blend fund has outgunned the Russell 2000 over the past decade. Its 10-year annualized gain of 11.4% ranks among the top 2% of its peer group. By contrast, the Russell 2000 has a 7.7% annualized return. Thrivent Small Cap Stock charges a below-average 0.81% expense ratio, according to Morningstar. The fund typically holds between 80 and 120 stocks. Its longest-held stock, Curtiss-Wright (CW), makes equipment for the aircraft and naval defense industries. Since early 2014, when the fund first purchased it, the stock has more than quadrupled in price

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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Bond prices and interest rates move in opposite directions, so bond market volatility was high in 2022 and 2023, when the Federal Reserve raised the federal funds rate at a record pace. 

But uncertainty about the path of interest rates can destabilize bonds, too, so price swings have continued into 2024. "It's been a challenging time," says Elizah McLaughlin, who manages the Fidelity Intermediate Municipal Income Fund (FLTMX) with Cormac Cullen and Michael Maka. 

Even so, over the past 12 months, Intermediate Municipal Income – a member of the Kiplinger 25, our favorite no-load mutual funds – turned in a 2.7% return, which outpaced the 2.1% gain in the Bloomberg Municipal 1-15 Year index. 

"Our goal is to deliver a consistent risk-adjusted return," says McLaughlin. "We're not trying to shoot out the lights every year."

She and her cohorts focus on municipal bonds, which pay income that is exempt from federal taxes. Their process is very "collaborative," which McLaughlin says differentiates their fund from others. 

The managers work with 13 fundamental analysts, three dedicated traders and a quantitative analyst. They sit together in a custom-designed space in Merrimack, New Hampshire, where most of Fidelity's bond pickers are based. "It's just a constant flow of information," she says, adding that the depth of research the team puts into securities is another differentiator. "That's where our expertise comes into play," says McLaughlin. 

That know-how helped this past year. The Fidelity mutual fund is heavily tilted toward revenue bonds, which are IOUs for projects such as toll roads that generate income to pay off bondholders. Some of these bonds tend to be less volatile when interest rates are rising, which helped the fund's performance in the early part of the past 12 months. 

In more recent months, the fund's heftier stake in revenue bonds with single-A, triple-B and lower credit ratings, relative to the benchmark, boosted the fund's return. Intermediate Muni Income yields 3.4%, a tax-equivalent 4.5% for investors in the 24% federal income tax bracket. 

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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Asset managers such as Vanguard, State Street and BlackRock have made it easy to own individual sectors of the stock market through low-cost mutual and exchange-traded funds. But are they good investments? 

The funds offer a simple way to diversify. For example, if your stock portfolio is heavy on shares of individual technology and energy companies, balancing those holdings with ETFs in sectors such as real estate and healthcare can provide a smoother ride. And a sector fund could make sense if you have a strong conviction that a particular area of the economy, such as finance, is underappreciated and will accelerate as investors recognize its true value.

I have been analyzing long-term data on Select Sector SPDR ETFs, which are managed by State Street and based on indexes that are subsets of the S&P 500 index, the large-company benchmark. Some of the results are striking. 

As you can probably guess, one sector has been a standout performer: technology. For the past 10 years, the average annual returns of seven out of the nine sector funds I studied fell into a narrow range, from 8.2% to 12.3%, but the Technology Select Sector SPDR Fund (XLK) averaged 20.7%. The tech fund was dominant throughout the decade: It was the top-performing sector fund in four of the past 10 calendar years and ranked in the bottom half only twice. 

But you might be surprised at how some companies that most of us consider technology holdings are classified by S&P (and, therefore, State Street). For example, Amazon.com (AMZN, $180), which returned an average of 26.8% over the past 10 years, is in the consumer discretionary sector ETF, and Alphabet, Netflix (NFLX, $607) and Meta Platforms (META), the former Facebook, are all in the communications services sector fund. (Prices and other data are as of March 31 unless otherwise noted.) 

Not including such stocks is a real drawback. That’s why I prefer Invesco QQQ Trust (QQQ, $444), which owns the largest Nasdaq companies, including all of the SPDR omissions. The ETF carries an expense ratio of 0.2%, compared with 0.09% for the State Street funds, an insignificant difference. 

The other outlier over the past 10 years has been energy. The SPDR fund returned an average of just 4.6%. The sector was highly volatile, ranking first in three of the past 10 calendar years and last in six. 

Sector fund returns converge... eventually

Although the returns of sector funds are scattered over 10 years, they converge over very long periods. State Street introduced the original nine sector ETFs in December 1998. (Real estate was added in 2015; communications services in 2018.) On average, during the 25 years ending in December 2023, the sector funds in existence — with one exception — returned between 6.8% and 9.5%. 

The laggard was the financial ETF, at just 5.1%. Banking suffered badly in the 2008–09 recession, and low interest rates during the entire period hurt profitability. Tops over 25 years was the consumer discretionary category, which edged out tech, health care and industrials (all within nine-tenths of a percentage point of the leader). 

The Consumer Discretionary Select Sector SPDR (XLY, $184), which ranked second over the past 10 years, includes automobiles, hotels, restaurants, entertainment and many retailers. There’s much to like in this sector, which performs well when the economy is strong, but the fund itself has become top-heavy, adding to risk by subtracting the benefits of diversification.

The two leading holdings — Amazon and Tesla (TSLA) — account for 36% of the fund’s assets. Tesla’s miserable performance at the start of 2024 was a major reason the fund trailed the S&P 500 by seven percentage points for the year to date. Still, I am recommending the ETF for its powerful portfolio, including McDonald’s (MCD, $282), Starbucks (SBUX, $91), Home Depot (HD, $384) and several homebuilders. 

One revelation from an examination of sector performance is that every ETF has rotten years. In 2022, tech finished eighth out of the nine original categories. Health care was second among the sector ETFs in 2014 and 2015 but last in 2016. You simply cannot predict how a sector will perform from year to year. 

Can you balance sector holdings?

For that reason, I believe a popular investment strategy called sector rotation is foolish. The idea is that you create a portfolio with disproportionate weight in certain sectors during particular phases of the business cycle and then move out of them as economic and market conditions change. For example, sector rotation favors utilities during the early stages of a recession and consumer staples during a late recovery. The strategy generates fees and time-wasting activity as you switch holdings, and there’s no evidence that it works. 

“At best,” an academic paper titled “The Myth of Business Cycle Sector Rotation” found, “conventional sector rotation generates modest outperformance, which quickly diminishes after allowing for transaction costs and incorrectly timing the business cycle.” Timing the business cycle is a futile endeavor. In 2022, most economists predicted a recession was coming the next year. But gross domestic product rose 2.5% in 2023, a rate that beat the average for the decade before COVID-19 hit. 

There are, however, good reasons for investors to put more emphasis on particular sectors. Technology has become the main engine of the U.S. economy. But I also like ETFs based on sectors that are out of favor, especially the Financial Select Sector SPDR Fund (XLF, $42), which returned an annual average of 10.9% over 10 years — compared with 12.9% for the SPDR S&P 500 Trust (SPY, $523), nicknamed “Spiders,” which reflects the entire large-cap benchmark. 

The financial SPDR fund has its own odd characteristics. Its top holding, at 13.1%, is Berkshire Hathaway (BRK.B, $421), even though Warren Buffett’s company invests half its assets in tech (mainly Apple) and about one-fifth in finance (nearly all in insurance). Owning a bit of Berkshire, however, is never a bad idea. The rest of the fund is conventional: JPMorgan Chase (JPM), Visa (V) and the like. Another good choice is the Vanguard Financials Index Fund (VFH, $102), which is more broadly diversified and has a similar 10-year record. 

My other preference for the next 10 years or so is the Health Care Select Sector SPDR Fund (XLV, $148). The population is getting older, therapies are getting better, and artificial intelligence will make care cheaper. BlackRock has ETFs that drill even deeper, such as the iShares U.S. Medical Devices ETF (IHI, $59), whose top holdings include Intuitive Surgical (ISRG, $399), which manufactures minimally invasive surgical systems such as da Vinci. 

Many investors, especially those with time horizons of 20 years or more, don’t need sector funds at all. Unless you need to balance a port-folio or have a strong belief in a certain part of the economy, you can get diversification the old-fashioned way simply by owning an S&P 500 fund such as Spiders or the Fidelity 500 Index Fund (FXAIX), a mutual fund that returned an average of 13% annually for the past 10 years, beating every sector fund except technology.  

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks and ETFs mentioned, he owns Amazon.com, Berkshire Hathaway, Starbucks, Invesco QQQ Trust and SPDR S&P 500. Reach him at JKGlassman@gmail.com.

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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Investing mistakes are easily – and sometimes often – made by those just getting started in the stock market. Rookies might put too much money in one asset class such as cryptocurrency that they currently like or that is getting media attention. Or they might spread their money across too many asset types without really understanding what they are doing.

I often find that beginning investors want all the upside of the stock market and get upset when they see the market fall. Many times, they will pull the trigger too early and sell. They don't realize that markets will have dry spells and that some volatility is inherent in the investing process.

But how can folks avoid some of these investing mistakes? Here are some simple rules to follow when first starting your investing journey. The goal, we hope, is to help you avoid typical beginner investing mistakes.

Prepare for volatility. Unless you put all of your money into certificates of deposit (CDs) or money market funds, you can expect to see some variability in your returns. One tool to gauge how volatile a specific stock is in relation to the broader equities market is its beta. 

The S&P 500 has a beta of 1.0. So, a stock with a beta above 1 typically means it is more volatile than the broad market, while a beta below 1 signifies that the equity is less volatile.

Don't invest money that you've set aside for emergencies. Emergency funds are important and we have them for a reason. Leave enough cash to have in case of emergencies or being let go from work. Put this money in a high-yield savings account or even your checking account that you can easily access. 

Ideally, you have enough saved to cover at least three to six months of living expenses. By not putting this money in the stock market, it will not be subject to any kind of volatility or sudden price drops. Additionally, emergency funds should not be put in a CD or similar account where there are withdrawal penalties.

Don't borrow money to invest. Investment returns are not guaranteed, especially in the short term. You could end up paying more in interest and being stuck in more debt if you borrow money to buy stocks. 

Along similar lines, don't use money that should be spent on paying down current debt. Debt reduction comes ahead of investing. Once this is under control, especially with your credit cards, you can put the after-debt excess in various investment vehicles.

Build a pyramid of liquidity. For example, keep some of your excess cash in easy-to-reach vehicles such as savings, checking or money market mutual funds at a brokerage firm. This will allow you to leave your best long-term investment stocks in your portfolio and grow their returns over time.

Diversify slowly. After that, some portion, not the bulk of your excess investment assets, can be put in CDs. Don't put all this excess money into stock market funds. This will allow for a no- to low-risk way to grow your money. And rates are attractive right now, with several 1-year CD rates above 5%.

Money market accounts also give folks a safe place to store their money and get a decent rate of return. Some of the best money market accounts right now are offering yields over 5%.

Study your investing options. Still, arguably the best way to grow your money over time is in the stock market. For beginners, investing your hard-earnings cash in the stock market is best handled by first buying mutual funds, especially no-load mutual funds that don't have a commission or sales charge, and/or low-cost ETFs (exchange-traded funds). These are baskets of equities that spread the risk around, and investing in these first will allow you to develop a feel for the intricacies of the equities market.

Only after doing that for some period should you venture out and invest in individual stocks.

Stick with dividend-paying stocks. The best outcome over time for both beginning investors and long-time market participants is to buy stocks with larger market capitalizations (i.e., over $100 billion in market value) that pay regular dividends. 

An example of one of the best dividend stocks around is Coca-Cola (KO), which has a roughly $260 billion market cap and has paid out and raised its dividends annually for the past 62 years. If you don't believe us, just ask Warren Buffett, who first added KO to the Berkshire Hathaway equity portfolio back in the 80s. In his 1988 letter to Berkshire shareholders, Buffett said he expected to hold on to the stock "for a long time" and indeed he has.

Don't invest in speculative stocks. Avoid tip stocks (someone gave you a tip about a potential high-flyer) with no earnings, no dividends and a small market cap.

The best stocks to buy are those that you can live with over a long period. Don't try and make a killing with your first investing forays. The odds are arguably not going to be in your favor. This is especially true with penny stocks and/or cheap stocks trading below $5 to $10 per share with no dividends. 

Among the many reasons to avoid these low-priced stocks is the lack of liquidity, or the number of shares being bought and sold. This makes the stocks "the perfect vehicles for "pump-and-dump" schemes where stock promoters lure investors to buy shares, increasing the stock price," writes Dan Burrows, senior investing writer at Kiplinger, in his feature on why you should stay away from penny stocks. "Once the price gets high enough, the pumper sells his shares, causing the stock to fall and leaving investors with poor returns, or even losses. Anyone here see The Wolf of Wall Street?"

Also avoid stocks with earnings so low that their price-to-earnings (P/E) ratio is very high (i.e., over 30x for the coming year).

Find good investing research. There are plenty of free websites such as Kiplinger that offer sound information to help guide your investment journey. Many sites such as Yahoo Finance, Morningstar and StockCharts allow folks to research potential investing opportunities.

Doing your proper research and coming up with a plan will allow you to improve your long-term investment returns with decent results. It will also allow you to weather difficult investing periods when the market takes a downturn.

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Let's say you've been regularly buying shares in a booming tech company over the past few years, but now you want to start taking some of those profits, perhaps to rebalance your portfolio. Your brokerage makes it easy-peasy: Just choose the number of shares you want to unload and click the "sell" button. Now you can celebrate your investing win!

You may not realize it, but the IRS might be celebrating, too. That's because investors can end up paying more of their gains in taxes than they have to if they aren't smart about choosing which of their shares to sell based on a factor known as cost basis.

Rather than being solely about what you make, "investing is about what you keep," explains Nilay Gandhi, a certified financial planner with Vanguard Personal Advisor. "Choosing the right cost basis method helps you keep more money in your pocket."

In concept, cost basis is simple: It's the price you paid for an investment. It isn't a worry for transactions made in tax-protected accounts, such as IRAs. Money withdrawn from those accounts is typically taxed at ordinary income rates. Whenever you sell shares held in a taxable account, however, your cost basis determines the size of your gain or loss, as well as your capital gains tax liability. The process can get tricky if you have been steadily buying shares of the same companies or funds over time.

Because prices go up and down, you paid a different price each time you made a purchase. Each separate purchase of a security in a single transaction is called a tax lot. So when it comes time to sell some of your holdings, the size of your tax-reportable gain (or loss) will depend on which lots you sell.

If you sell lots purchased more than a year ago for a profit, you could pay anywhere from no tax to 20% in federal long-term capital gains tax, depending on your tax bracket. (You might owe more to your state if it taxes capital gains.)

Selling lots you purchased within the past year for a profit could incur short-term federal capital gains tax of up to 37%, as well as possible state tax. In addition, any gain, whether short term or long term, could boost your income enough to expose you to other taxes or costs – such as the federal net investment income tax of 3.8%. Losses, on the other hand, can be used to offset gains and reduce your tax bill.

Unless you change your brokerage's default settings, whenever you sell part of a holding, most major brokerages will typically either sell the oldest lots first or report your average overall cost to the IRS. That's an okay start, but most brokerages offer other options that can reduce your taxes even more, says Allan Roth, a Colorado-based certified public accountant and financial adviser.

Choose your cost basis options wisely

Roth's preferred method is to select which lots to sell himself so that he can exactly tailor his gains or losses to that year's tax situation. To do that, you must go into your brokerage's account settings and switch the cost basis default to the fully personalized option, which goes by slightly different names at different brokerages, such as "specified lots" at Charles Schwab, "specific shares" at Fidelity and "specific identification" at Vanguard.

Before any sale, decide exactly which lots will give you the optimal combination of gains and losses, and only then direct the brokerage to sell your chosen lots.

How cost basis is calculated

For investors who don't want to spend time on such precise machinations, brokerages offer several other automatic cost basis methods that advisers say can help reduce tax liabilities. To make sure you are taking advantage of the option that's best for you, log in to your brokerage account and check (and possibly change) your cost basis default setting before you make any sale, Roth stresses.

"The IRS doesn't allow do-overs," he says. There are more than a dozen cost basis methods. Here are five of the most popular and useful options, listed alphabetically:

Average. This method, which averages all your purchase prices of the same investment, is typically reserved for mutual funds. It's the default fund option at some major brokerages, including Fidelity and Vanguard. The IRS does not allow you to use it for most stock sales. The average method is one of the simpler methods and can be a reasonable option for longtime fund investors who expect their capital gains, income and tax rates to remain stable.

First In, First Out (FIFO). This method automatically sells the oldest lots first. It is the default option for all holdings on E*Trade, Robinhood and many other brokerages, and it is the default option for stocks and exchange-traded funds at Fidelity, Schwab and Vanguard.

In a generally rising market, FIFO makes it more likely that any capital gains will be long term. Josh Trubow, a certified financial planner in Waltham, Massachusetts, notes that this option doesn't guarantee the lowest tax bill, but it can be a reasonable choice for investors wishing to donate highly appreciated stock.

It can also work for investors whose income – after the gains are added – keeps them in a low capital gains bracket. For example, for 2024, married couples filing jointly who have taxable income below $94,050 pay no federal long-term capital gains taxes. It may also make sense to take gains now if you think your tax rate will be higher in the future, Trubow adds.

Highest In, First Out (HIFO). This strategy sells the lots that you paid the most for. That can be advantageous for anyone trying to limit their capital gains and maximize their tax losses, says Vanguard's Gandhi. But, he warns, this method does not take into account the date you made the purchase. If using this method results in selling for a profit some shares bought within the past 12 months, you could face higher short-term capital gains rates.

Lowest Cost, First Out (LOFO). This method sells the investments with the biggest gains first. Like HIFO, LOFO does not take into account the date of the purchase, so it may expose users to liabilities for short-term capital gains tax. And like FIFO, it can be a reasonable option for those designating appreciated shares to donate, or for those currently in low tax brackets or who expect their tax rates to be higher in future years.

Tax-optimized. Most major brokerages offer at least one sophisticated automatic cost basis option that takes into account both timing and returns to avoid short-term capital gains taxes and maximize tax losses. E*Trade calls its version "Minimum Tax Impact," Fidelity's version is "Tax-sensitive," Schwab's is called "Tax Lot Optimizer," and Vanguard's is "Minimum Tax."

Roth, who works with clients who use a few major platforms, says he hasn't noticed significant differences in the results of the different tax-optimized methods at the brokerages. Although he still prefers designing his cost bases himself, he says the brokerages' automatic tax-minimizing options are a good compromise.

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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Many people see mutual funds as a great investment vehicle. Consider the advantage: Because they’re funds that contain a variety of assets, you get automatic diversification. If Company A’s stock crashes, you’d lose a lot if you were directly invested in it. But if it’s only a portion of the mutual fund in your portfolio, your risk exposure is considerably less.

That idea isn’t wrong, but it’s also not entirely right. As with many things in the world of personal finance, it takes some digging under the surface to see why.

Monolithic diversification?

Over-reliance on mutual funds can lead to something I call the duplication trap. To understand what that means, consider the common scenario of a portfolio invested in more than one mutual fund.

Generally, when choosing a mutual fund, you look for the ones that perform the best. If you invest in 15 of the top-performing mutual funds, the logical assumption is that you’re well-diversified: Each mutual fund is itself diversified because it owns multiple assets. If one of the mutual funds makes unfortunate investment decisions and performs poorly, because you’re diversified in mutual funds themselves, the other 14 can help buffer the losses.

Making that assumption, however, risks a fall into a duplication trap. Consider why those 15 funds are the top-performing funds. Odds are, it’s because they’re all investing in largely the same assets! For example, if Mutual Fund 1 invests in Microsoft, Apple, Google and Nvidia, and so do Mutual Funds 2 through 15, then what you’ve done is invest in the same four tech companies 15 times. Suddenly, all that diversification doesn’t seem so diverse.

This is why it’s important to investigate what exactly the mutual fund you’re considering is invested in, especially if you already have other mutual funds in your portfolio. There’s no point in getting a second mutual fund that virtually mirrors the first — you might as well just increase your position in the first fund.

Unanticipated fees

I recently worked with a client who had about $1.3 million invested in mutual funds. She’d been working with a large financial services firm that charged fees for their services. What she failed to understand is her fees didn’t stop there. Each mutual fund has an expense ratio — a fee you pay for the management of the fund, separate from your adviser. She was paying considerably more than she realized in fees to hold multiple mutual funds that were all largely duplicates of one another.

This is a common hazard when working with very large financial services firms. When a firm scales up its operations to accommodate millions of clients, it must streamline. It’s impossible to individualize advice for every client, so the firm usually puts each client into a risk-tolerance category and then chooses funds for that category rather than the individuals in it.

This generally leads to a lack of diversity in your investment options, which can lead to paying excessive fees while tumbling headlong into the duplication trap.

Uncontrollable income

Another weakness of a mutual fund-heavy portfolio is most funds pass on the earnings (capital gains) to the fund holder, you. Each year, the investor must pay capital gains taxes on the distribution, regardless of whether you wanted it or not. You might ask, who wouldn’t want someone handing them cash in exchange for having to pay taxes? However, taxes aren’t the only issues these distributions can cause.

The client I mentioned above retired early, well before she was eligible for Medicare. When you do that, you need to find a way to cover your health care until you become eligible. This can be very expensive unless you qualify for reduced-cost plans through the Affordable Care Act. To qualify, your income needs to remain under certain limits depending on your household size.

If you’re heavily invested in mutual funds, all of which are sending you money each year, you may not be able to keep your income under those limits. Dividends for people with sizable stakes can be in the tens of thousands of dollars, forcing you to pay very high insurance premiums until you become eligible for Medicare at age 65.

This is a good example of why it’s important, as you near retirement, to consider how your investments might impact your finances in unexpected ways. Will they force you to pay too much for health care? Will they move you into a higher tax bracket? You need to be in control of how your retirement money gets distributed to avoid unpleasant surprises in health care spending or tax season.

In general, mutual funds are a solid choice for younger-to-middle-age investors who don’t yet have a financial adviser, especially if they’re part of your employer-sponsored 401(k) where a company match is available. As you approach retirement and start shopping for a financial professional, it’s a good idea to consider whether you should continue that strategy. Work with your adviser to determine the best investment strategy for your unique situation as you approach and enter retirement.

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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.

At long last, the market story of the year — at least the good news — didn't center on U.S. stocks. Instead, foreign markets topped the charts, lifted in part by a weakening dollar.

The MSCI All Country World Index ex USA — representing all markets except the U.S. — returned 32% in 2025, a whopping 14 percentage points ahead of the 18% gain in the S&P 500. European stocks led with a 35% return, but other developed regions and emerging markets were close behind. The MSCI Emerging Markets index gained 34%; Asian stocks climbed 30%.

Here at home, 2025 was tarnished mostly by uncertainty surrounding the impact of tariffs. That fueled a lot of market volatility, starting with an early spring downturn that brought the S&P 500 to near-bear-market territory, but the index recovered after that.

Artificial intelligence chatter, particularly about massive spending on AI infrastructure, dominated business headlines, and communications services and tech stocks continued to lead S&P 500 sector returns. But market gains broadened, albeit only a bit. Financials, industrials, utilities and even the health care sector each posted better than 15% returns in 2025.

The good times expanded to shares in small companies, eventually. The Russell 2000 index of small-cap stocks finished 2025 with a 13% gain overall, but that doesn't tell the whole story. The benchmark started the year badly, falling 21% through early April—that's a bear market. But from its nadir, the index rallied 42%, outpacing large- and midsize-company stocks on the rebound.

How we compiled the Kiplinger mutual fund guide

Here, we show the top-performing stock mutual funds in 11 categories, using information from Morningstar, the financial data firm.

Only funds with a minimum investment of $10,000 or less are included. We removed funds that are only available to institutional investors or that are sold only to certain advisory clients of specific investment management firms. In those instances when two individual-investor share classes of a particular fund ranked among the winners, in most cases we chose to include the share class of the top-performing fund.

Many of the top-ranked funds, you'll notice, are A-share classes, which typically charge a front-end load. In truth, most (but not all) are available at major online brokers for no sales charge, load or transaction fee.

A few funds aren't available through a brokerage firm. Instead, you must buy shares the old-fashioned way, from the mutual fund directly. Some of the funds are closed to new investors, which we've noted.

It's important to note that these lists are not recommendations from Kiplinger. We report the top-performing stock funds in these categories as a service for readers who would like to see how certain broad categories of funds performed over the past one, three, five and 10 years. Use the tables as a starting point for your own research; again, they are not investment suggestions.

All data is through December 31. Funds marked with an asterisk are closed to new investors; those with a double asterisk are closed to all investors.

Large-cap stock mutual funds

The reign of growth continues.

Nothing says mid-2020s investing success like high-growth stocks. Three funds from growth shop Fred Alger Management make the one-year winners list, including Focus Equity (ALAFX), a winner in all four time periods. Capital Appreciation (ACAAX) and Spectra (SPECX) also place on the three-year honor roll.

Common threads: longtime co-managers Patrick Kelly and Ankur Crawford, with Alger CEO Dan Chung on two of the funds. Nvidia (NVDA) and Microsoft (MSFT) are the top two holdings for all three funds.

Fidelity Blue Chip Growth (FBGRX), a member of the Kiplinger 25, the list of our favorite no-load mutual funds, places twice; manager Sonu Kalra has nearly half the fund's assets in tech stocks.

Kip 25 fund Primecap Odyssey Growth (POGRX) bounced back from near the bottom of its category to notch fourth place among one-year winners. With nearly 44% of assets in health care and industrial stocks, the fund's top holding is drugmaker Eli Lilly (LLY).

Mid-cap stock mutual funds

Multiple ways to win.

Four of the funds here are three-peat winners, ranking in the top 10 for three of the four time periods. The eclectic list includes mid-cap blend fund Tarkio (TARKX), which has its biggest stake in industrials and scored well in 2025 with GE Aerospace (GE) and spin-off GE Vernova (GEV).

Marsico Midcap Growth Focus (MXXIX) — note that the fund's record prior to 2022 belongs to another manager — and Hodges (HDPMX) skew toward "growthier" fare. The Marsico fund owns GE Vernova as well (the top holding at last count), but it also won big in 2025 with tech company Amphenol (APH) and Rolls-Royce Holdings (RYCEY).

Hodges profited from bets on Palantir Technologies (PLTR) and bitcoin miner TeraWulf (WULF).

FullerThaler Behavioral Unconstrained Equity (FTZAX) seeks to capitalize on behavioral biases that may cause the market to over- or underreact to information. Top holdings include Ross Stores (ROST) and Union Pacific (UNP). Each of the four funds runs a trim portfolio, with fewer than 40 stocks at last count.

Small-cap mutual funds

Smalls catch a big wave.

The smallest of small caps fared best in 2025. Several funds with hefty exposure to the stocks of micro-size companies outperformed, including Jacob Small Cap Growth (JSCGX), Driehaus Micro Cap Growth (DMCRX) — closed to new investors — and Needham Aggressive Growth (NEAGX). These are high-volatility funds, but the risk can pay off: Needham Aggressive Growth is the only fund to rank among the top 10 in all four time periods.

Oberweis Small-Cap Opportunities (OBSOX), a Kip 25 fund, earns a spot on the 10-year table. Manager Ken Farsalas leads the strategy, which focuses on taking advantage of stock-price in­efficiencies after a company appreciably beats analysts' earnings expectations. The fund is volatile, but no more so than the typical small growth fund.

Hood River Capital Management, a firm with an investment process that focuses on market inefficiencies, has two funds in 2025's top 10, but one, Hood River Small-Cap Growth (HRSRX), is closed to new investors.

Hybrid mutual funds

A multi-asset strategy.

Funds that hold stocks, bonds and cash fit in here. Think target-date funds, which shift the asset mix over time; or allocation funds, which hold a static blend of stocks and bonds; or convertible funds, which invest in hybrid securities such as bonds that can be exchanged for common shares.

That said, funds with unusual asset mixes can also slip into this category. Kinetics Global (WWWEX), for instance, holds roughly 65% of its assets in stocks and 35% in cash; a bitcoin exchange-traded fund is the top holding.

Funds with hefty foreign-stock stakes did well in 2025, including Thornburg Investment Income Builder (TIBAX) — 60% in non-U.S. stocks — and Templeton Global Dynamic Income (TAGBX), at 43%.

Value Line Capital Appreciation (VALIX) has proven it has staying power — it ranks well over three and 10 years. The balanced fund holds 68% in stocks and leans on the firm's "Timeliness Ranking System" to choose securities; the rest of the portfolio sits in bonds and cash.

Large-cap foreign stock mutual funds

A good year to explore abroad.

Some one-year winners, including Wasatch International Value (WAIVX) and Vaughan Nelson International (ADVJX), were helped by a hefty slug of European stocks, the best-performing broad region in 2025. Note that both funds feature new managers with less than two-year tenures.

Colin McQueen has run T. Rowe Price International Value (TRIGX) since 2019, and his three- and five-year records rank among the winners. The fund's expenses are below average, too.

Fidelity International Value (FIVLX) is a five-year winner; it has outpaced its peers in eight of the past 11 calendar years. WCM Focused International Growth (WCMRX) sports an above-average expense ratio, but it ranks well over three and 10 years, with a trim portfolio of 30 to 40 stocks in industry-leading foreign firms.

Finally, despite a draggy turn from 2021 through 2023, Vanguard International Growth's (VWIGX) 10-year record ranks among the top 1% of its peers.

Small- and mid-cap foreign stock mutual funds

Keeping up with bigger brethren.

Small-company stocks in foreign developed and emerging countries fared well in 2025. The MSCI ACWI Ex USA Small Index logged a 29% gain.

Causeway International Small Cap (CVISX) did better than that but didn't finish among the top 10. It wins instead over longer hauls with a focus on low valuations, superior growth, quality and momentum, among other factors.

Oakmark International Small Cap (OAKEX) stands out over five years, despite some middling calendar-year returns. Fidelity International Small Cap Opportunities (FSCOX), a 10-year winner, is run by Jed Weiss, a solid manager who also runs a foreign large-cap growth fund that is in the Kiplinger 25.

Brown Capital Management International Small Company (BCSVX), on the 10-year list, is another Kip 25 member. The fund's managers focus on "exceptional" small growth companies that deliver must-have products or services and sport increasing sales or profits.

Global stock mutual funds

Globetrotting pays off.

Global funds invest all over the world, including the U.S. Vanguard Global Capital Cycles (VGPMX) tops the one-, five- and 10-year tables. The fund invests in developed and emerging countries, favoring com­panies with business models that cannot be easily replicated.

It also holds at least 25% in precious metals and mining securities — basic materials stocks made up one-third of the portfolio, at last report. The fund tilts heavily overseas, too. More than 70% of assets are invested in non-U.S. stocks.

Causeway Global Value (CGVVX) is more evenly divided between U.S. and foreign stocks and across sectors. It wins a spot in the one-year table, but the fund boasts solid long-term returns, too.

Fidelity Worldwide (FWWFX) shines over five and 10 years, in part because of an above-average exposure (66%) to U.S. stocks. That hurt its relative performance in 2025, but the fund's 16% return still kept pace with the typical global stock fund.

Diversified emerging market stock mutual funds

This rally is for real.

Buoyed by a weakening dollar and strong economic growth, emerging markets stocks celebrated their best calendar year since 2017, rising 33%.

Pzena Emerging Markets Value (PZVEX), which makes the five- and 10-year lists, sifts among the cheapest stocks to find companies capable of a turnaround. China, South Korea and Brazil are its top country exposures.

Artisan Developing World (ARTYX), on the 10-year table, is more growth-focused, investing in large firms that generate positive free cash flow (money left after operating expenses and spending to maintain or upgrade property and equipment).

The outsize one-year return in Nomura Emerging Markets (DEMAX) gives us pause. It comes thanks to 15% stakes each in two Korean firms that rose four- and fivefold in 2025. It's likely the reason the fund ranks well over the past three and 10 years, too. The fund has been significantly more volatile than its peers over the past decade.

Regional and single-country mutual funds

Asia, no matter how you slice it.

Winners in this group include funds that focus on a specific country or region. But funds that invest in Asia — developed or emerging, across the region or in a single country — dominate the tables.

Japan-focused funds Matthews Japan (MJFOX) and Fidelity Pacific Basin (FPBFX) rank well in the three-year table, in part because the period encompasses the 2024 record high set by the Nikkei index after 34 years.

India funds, including Wasatch Emerging India (WAINX), stand out over five and 10 years. Regional funds can lessen the risk of investing in a single-country market, and they have done well, too.

Matthews Asia Innovators (MATFX) holds stocks in China, Taiwan, India and South Korea.

Closer to home, the manager behind long-term winner Fidelity Canada (FICDX), who took the helm in 2018, can claim responsibility for its five-year record, but not its 10-year results. Royal Bank of Canada (RY) and Shopify (SHOP), based in Ottawa, are its top holdings.

Sector-specific mutual funds

The golden touch.

Gold was great in 2025 — the precious metal jumped more than 60%, and the shares of the companies that mine it fared even better. The result? Every fund that ranked in the top 10 for one-year returns specialized in gold or precious metals.

And several of those funds now make the 10-year top 10: OCM Gold Atlas (OCMAX), Franklin Gold and Precious Metals (FKRCX), and Rydex Precious Metals (RYPMX).

The run-up in gold has reordered the dominance by tech and energy funds in years past. At the end of 2024, those funds topped sector returns for all four periods.

Although many of the funds have departed the top rankings this year, energy still dominates the five-year table, and tech funds make up more than half of the 10-year list.

Fidelity Select Semi­conductors (FSELX) is the best-performing sector fund for the three- and 10-year periods and ranks third on the five-year list. It first bought Nvidia (now nearly 24% of assets) in 2007.

Alternative mutual funds

Portfolio diversifiers packing a punch.

These strategies are a motley crew of approaches, but they all aim to hedge against a market downturn and offer portfolio diversification.

Some capitalize on stock-price swings that occur before, during or after a merger or spin-off; others use hedging techniques to limit losses. Fees are high: The average expense ratio for funds in this category is 2.01%.

Funds that shine over short and long stretches include AQR Equity Market Neutral (QMNNX), which buys stocks its managers believe will outperform — such as Novartis (NVS) and Walmart (WMT), recently — and sells short stocks that they think will underperform, Nike (NKE) and Starbucks (SBUX).

Gabelli Enterprise Mergers & Acquisitions (EMAAX) invests in stocks of global firms involved in takeovers, liquidations and other corporate moves. AQR Diversifying Strategies (QDSNX) tactically invests in a mix of six alternative AQR funds (including several that pepper the winners tables). It ranks in the top 10 over one, three and five years.

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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A few times a year, whether in the financial press or from clients and prospective clients, we encounter comments about mutual funds that contain misconceptions. There are three more-frequent misconceptions that I would like to clear up and purge from investors’ memories.

To establish a foundation, it’s essential to understand that a mutual fund, at its core, is a “wrapper,” or an investment structure that allows many individual investors to pool their money to invest in a basket of securities. Instead of buying many individual securities on their own, investors invest in shares of a mutual fund to gain exposure to these securities with one purchase. Buying shares of a mutual fund allows for easier diversification among many securities.

Now, let’s dig into the three most common misconceptions about mutual funds.

Misconception #1: Mutual funds give investors the opportunity to beat the market.

I can see where this misconception originated since active investment managers predominantly used mutual funds. The mutual fund structure dates back nearly 100 years in the U.S., gaining popularity in the 1970s and 1980s. Historically, mutual funds were investment vehicles accessing active investment strategies where professionals running the funds attempted to beat the market they were compared to.

In the 1970s, the first passive investment S&P 500 index fund was made available to retail investors. It was designed to track the market, not beat it. As the popularity of index investing grew, more passively managed mutual funds came to market.

If you participate in a 401(k) or 403(b) plan through your employer, odds are you are given a list of mutual funds to choose from, and there are likely passively managed/index options available to keep plan expenses low. A mutual fund is just a structure to pool investors, and it is critical to understand the stated investment strategy, the underlying investments and the cost of the funds you are considering, which vary per fund.

Misconception #2: Mutual funds have high expenses.

Many legacy funds have high expenses, including manager fees and commissions, which have dominated this investment vehicle for decades. However, many mutual funds today have low expenses. Over the mutual fund’s long history, commissions and fees were relatively high by today’s standards. Further, most actively managed funds failed to beat their benchmarks’ net of fees, leading to investors looking for other options. The mutual fund wrapper became confused with the cost of the active management of many funds.

A lot has evolved in this structure over the past few decades. Fees have been driven down, and a lot of low-cost passive index replication strategies have been offered in the market using this vehicle.

Mutual funds are available in all types of asset classes ranging from stocks, bonds, commodities, real estate and money market. There are mutual funds that blend stocks and bonds for certain levels of risk appetite and many that give investors access to liquid alternative investment strategies. The expense level will be driven by how the mutual fund is managed and what type of assets it invests in. For example, a U.S. stock mutual fund will likely have different costs than a mutual fund investing in commodities.

Investors should also pay attention to the share classes of a specific mutual fund. In many cases, a fund may have multiple share classes with different expense levels. Investment minimums may apply to getting access to the lowest-cost share classes. One of the largest passive index mutual funds operates with a 0.04% annualized fee, which is an example of not all mutual funds having high expenses.

Misconception #3: Buying mutual funds is an investment strategy.

In many cases, investors will use multiple mutual funds to design a well-diversified portfolio to meet their needs. They may also use mutual funds to access a specific asset class on part of their portfolio and different types of investment vehicles for other parts of the overall strategy. For example, a mutual fund that is managed to passively track the S&P 500 index will invest only in large U.S. publicly traded stocks. That might suit certain investors who are comfortable with their entire investment portfolio moving up and down with that particular index.

However, investors who may not need to or be able to tolerate that level of price volatility may end up adding other investment strategies to their portfolio to balance out their stock exposure. They may end up adding an investment allocation to mutual funds that invest in bonds or owning the bonds directly if that is better for the specific investor.

While we discussed three common misconceptions about mutual funds, some of this also applies to a more modern pooled structure called exchange-traded funds (ETFs). These, too, can come with different types of investment strategies and a range of costs. However, investors have different misconceptions about ETFs; many believe they are all low-cost and better than mutual funds.

In some respects, ETFs come with more advantages than mutual funds. For example, being able to trade them throughout the day, certain asset classes are more tax efficient in this wrapper than in a mutual fund, and it is possible to see all the underlying holdings daily. While this is not an exhaustive list, the main point is you must still research what each invests in and how it manages the strategy.

Not all mutual funds are expensive, and not all ETFs are cheap. Remember, these are just pooled vehicles that allow investors access to a basket of securities with one purchase vs buying all individual securities on their own. A financial adviser can help you navigate these types of investments and determine a strategy for your goals and risk tolerance.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

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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.

As a retiree, you might want, or even need, to know how to conservatively invest your retirement assets. At the most basic level, you need a mix of income, safety, liquidity and availability of funds. In addition, your priorities should be simplicity and predictability. So let's explore the best conservative investments for retirees.

First, you should consider whether you should work with a financial adviser. And you should always do your own research to make sure you're making suitable investment choices based on your own needs and goals.

Also, as you get older, you should take stock of what is and what isn't working and potentially narrow your investment choices over time so simplicity and liquidity are the highest priorities.

Meanwhile, a portfolio built from the best conservative investments for retirees should suit you across your time horizon.

Broadly speaking, the best conservative investments for retirees tend to be a mix of mutual funds, preferably index funds, that invest in the stock and bond markets, as well as liquid money market funds (i.e., those that pay interest).

How to choose the best conservative retirement investments

Warren Buffett famously said that retirees should invest the majority of their assets in low-cost ETFs (exchange-traded funds) that mimic the S&P 500. Arguably the best investor who ever lived advises you to use an indexing strategy that mirrors the performance of the 503 stocks included in the index.

Indeed, Buffett has said that up to 90% of investors' assets should be in these cheap ETFs. In his 2013 letter to Berkshire Hathaway shareholders, he wrote that the "long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

Others believe that a more appropriate mix is 70% in stock market index funds. The remainder should be in a mix of bond funds, certificates of deposit (CDs) and money market funds. That could mean 20% in bond funds and 10% in CDs and money market funds.

Here are some of the benefits to these types of conservative retirement investments:

Stock market index ETFs have low fees and also pay out all the dividends they collect from the underlying equities. There is no capital gains tax incurred until shares are sold.

Right now, the S&P 500 has a dividend yield of 1.1%. Moreover, the S&P 500's 12-month total return (price change plus dividends) is 15%.

Additionally, investments in stock index funds have played out well over time. For example, the S&P 500 has averaged an annual total return of 14% over the past 15 years. Not too shabby.

Bond funds typically offer investors a lower return than index funds, but more peace of mind. Granted, the bond market has seen its fair share of volatility in recent years, but as Kiplinger contributor Jeff Reeves writes in his feature on the best bond funds to buy, "If you're at or near retirement and your biggest concerns are capital preservation and income, you simply cannot overlook bonds."

Investors can also gain exposure to the fixed-income market through bond ETFs, as well, which tend to have lower expense ratios than their mutual fund counterparts.

Keep in mind that bond funds fluctuate in price, just as stock funds do. Many investors don't realize, for example, that if interest rates rise over time, bond prices can decline. However, because of the inverse relationship with bond prices and yields, falling prices result in higher yields.

On the other hand, if the general level of rates begins to decline, principal amounts will rise but investors could be left with lower monthly interest payments.

Certificates of deposit (CDs) are another way to safely grow your money in retirement, although one drawback includes having to tie up your money for the length of the certificate. Still, many CDs currently have yields that range well over 4%. The best CD rates right now range between 4% and 4.35%.

Similarly, high interest is available from a mix of money market mutual funds. According to Crane Data, the 100 largest taxable money market funds tracked by the investment services firm currently boast an average yield of 3.50%.

The bottom line 

The bottom line is that folks looking for the best conservative retirement investments will generally make steady returns in index funds that cover the stock and bond markets.

The theory here is simple: As funds are drawn down for retirees' liquidity needs, the growth from being invested in the stock market and to some extent bond funds, can help counteract these drawdowns.

In addition, by keeping a portion of investments in semi-liquid and stable CDs and liquid money market funds, both which pay interest, retirees can meet their monthly and daily funding needs. Over time, the portion in liquid funds should grow for most retirees.

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Gone are the days when cash was trash. Now, it's a valued asset that can earn 5% a year. That's why it's important to make sure the ready money in your brokerage account is earning a competitive yield. 

A brokerage sweep account, sometimes called a core or settlement account, holds your uninvested cash. When you sell a security – a stock, mutual fund or exchange-traded fund, say – the proceeds are placed in the sweep account. And when you buy a security, cash in the account pays for the trade. It all happens automatically. 

But here's the rub: Some brokerage firms park your cash in accounts with good yields, while others put it in holding places with not-so-good yields. 

At Fidelity, for instance, cash in retail brokerage and retirement accounts sits in a money market mutual fund that yields a healthy 5.0%. Vanguard's default settlement account, a government money market fund, yields 5.3%. By contrast, Charles Schwab offers a choice of two sweep accounts. Both yield 0.45%. And E*Trade offers little choice – most customers land in a bank deposit program that currently yields 0.01% for balances of $499,999 or less. (All yields and data are through November 30, unless otherwise noted.)

Of course, sweep accounts are supposed to be temporary holding places, not cash management accounts. You can't write checks or pay bills from a sweep account, for example. "It's a settlement account, for the liquid cash you have at your brokerage," says Greg McBride, Bankrate.com's chief financial analyst. 

If your brokerage firm offers a government money market fund as its default sweep account, you probably don't need to worry about your settlement account yield or make a change. But if your brokerage account cash isn't earning 4% or better, it may pay to consider alternatives. 

Finding the right place for your idle cash isn't just about getting the best yield, however, says Peter Crane, president of money-fund-tracker Crane Data. Other factors matter too, such as how soon you plan to use your cash and how much of it you have. Keep these tips in mind before you move your money out of a sweep account. 

Know your options when it comes to sweep accounts 

Some firms let you choose a different default sweep account – a bank account, say, or a government-debt or muni-bond money market mutual fund. If your firm doesn't (and you don't like its default option), you'll have to move cash on your own to a competitive money market fund. 

Schwab guides investors who want to boost their cash yield to money market funds, including money funds that hold government debt or municipal bonds. The taxable money fund yields range from 5.06% to 5.25%, and they have no transaction fees or investment minimums. But you don't get instant access – the money will be available in your sweep account the next day if you sell shares in the money fund by 4 pm Eastern time.

Vanguard offers as a second option a bank sweep account called Vanguard Cash Deposit, which yields 3.7% as of August 31. But Jeffrey DeMaso, editor of The Independent Vanguard Adviser, a newsletter about Vanguard funds, favors the default government money fund over the cash deposit account, in part because the money fund offers a higher yield. 

Make sure your money is accessible 

Where you hold your money matters, depending on how you plan to use it. "Convenience is the most important factor," says Crane. Funds you want to put to work immediately in the event the stock market takes a dip are best held at the ready in your brokerage account, even if that's in a low-yielding sweep account. Otherwise, "you could miss a buying opportunity of a lifetime," says Crane. 

The caveat is how much money you're sitting on and how long you plan to hold it. If it's $100,000, $20,000 or even $10,000, a 5.0% yield over one year can be meaningful ($500 to $5,000). Unless you're planning to invest the whole pot in short order, it may be worthwhile to shift some of the cash to a higher-yielding money fund. 

Don't overthink money market funds  

The vast majority of money market funds invest in short-term government debt, says Crane, and "it really doesn't matter which one you pick." The two biggest are the Fidelity Government Money Market Fund (symbol SPAXX, expense ratio 0.42%, seven-day yield 5.0%) and the Vanguard Federal Money Market Fund (VMFXX, 0.11%, 5.3%). 

There's no minimum on the Fidelity fund. But the Vanguard fund requires a $3,000 initial investment – unless you're a Vanguard brokerage account customer, in which case there's no minimum. Just remember that if you invest in a money market fund outside of your sweep account, transfers may not be instantaneous. 

Don't obsess about yields in the same ballpark 

People tend to dither over choosing a fund with a 5.25% yield or one at 5.00%, says Crane. That's annualized. You'd have to leave the cash for 12 months to earn the full yield, and even if you do, the difference in earnings may not amount to much. Over the course of a year, for instance, you'd earn $1,050 on a $20,000 balance at 5.25% and $1,000 at 5.00%. 

That said, money market funds with yields that seem too high are a red flag. The Federal Reserve has set its short-term interest rate target between 5.25% and 5.50%. If a money market fund yields 6%, says Crane, "You have to ask yourself why. The fund may be taking on some added risk." 

All yields are net of fees and are annualized. Money market funds quote seven-day yields, and bank-issued money market deposit accounts and savings accounts cite annual percentage yield (APY), which includes the effect of compounding interest. They're calculated differently, so these yields "aren't necessarily apples to apples, but they're comparable," says Bankrate's McBride. "They're both projections on how much you'll earn over the course of the coming year." 

Skip municipal-bond-based money market funds 

Municipal debt generates income that is exempt from federal, and sometimes state, income taxes. But unless you're in the highest tax bracket, or you live in a high-tax state such as California or New York, "ignore them," says Crane. 

For starters, the yields on municipal-bond money funds tend to bounce around a lot. And the tax-equivalent yields on these funds aren't as enticing unless you're a very high earner. For instance, the 3.38% yield on the Vanguard Municipal Money Market Fund (VMSXX), the biggest retail fund, translates to a tax-equivalent yield of 4.44% for investors in the 24% federal tax bracket. But the tax-equivalent yield for those in the 35% bracket, including the extra 3.8% Medicare surtax on investment income that applies to certain high income earners, jumps to 5.52%. 

Consider Treasury bills for cash you won't invest right away  

These U.S. Treasury IOUs have maturities of less than one year (they're issued in four-week, eight-week, 13-week, 17-week, 26-week and 52-week maturities). Recently, one- to three-month bills yielded nearly 5.5% or more; four-month and six-month bills, roughly 5.4%. 

"This flexibility allows investors to potentially earn a higher return on their savings and still have access to their funds when needed," says Jonathan Bird, a certified financial planner in Phoenix, Arizona. 

You can buy them through your broker, typically for a minimum of $1,000. Or consider a T-bill exchange-traded fund, such as the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL, 0.14%, 5.3%) or the iShares 0-3 Month Treasury Bond ETF (SGOV, 0.07%, 5.2%).

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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Ah, retirement. No more snarled commutes, demanding bosses or tight deadlines. But after saving for decades, you now have to figure out how to turn your nest egg into a cash spigot.

"It's a big moment going from earning an income to not earning an income. There's a lot of emotion and change," says Jeffrey DeMaso, editor of The Independent Vanguard Adviser, a newsletter for Vanguard fund investors.

Re-engineering your portfolio from accumulation mode to decumulation mode can be daunting.

You'll have to get a handle on how much you need for essential expenses and come up with a plan on how to cover these costs for the rest of your life.

"The biggest fear people have about retirement is running out of money," says Anne Ackerley, senior adviser of BlackRock's Retirement Group.

Fortunately, a variety of products and services – some new, others new-ish – are designed to help people spend and invest their savings wisely in retirement.

Some are available only in certain workplace retirement savings plans, so access depends on whether it's offered in your plan. Other funds or services are available to all individual investors. We'll walk you through some of the options.

All data and returns are through January 13, unless otherwise noted.

Where can I find multi-asset income funds that pay me in retirement?

The first place to look for help when seeking out these income funds is your workplace retirement plan. The SECURE Act, a broad package of changes to rules governing retirement and retirement savings plans, eased the way for corporate retirement plans to include annuities, which are insurance products that pay fixed annual sums, typically for life.

In response, some 401(k) plans are beginning to offer target-date strategies with an annuity component that offers a paycheck-like experience in retirement.

Like their conventional target-date-fund predecessors, target-date-plus-annuity strategies invest in multiple asset classes that shift over time to a more conservative mix as you age.

The twist is that at a certain point along that glide path, some of your contributions are directed to an annuity. BlackRock's LifePath Paycheck and Nuveen's Lifecycle Income series are two examples. Both are available in some retirement plans.

How does the annuity portion work?

The way the annuity portion works varies.

Nuveen's funds invest a portion of the bond portfolio in an annuity at the start of the series' glide path, 45 years before retirement. The annuity allocation starts at 2.5% of the portfolio and increases to 40% at the end of the glide path.

Allocations to the annuity contract included in BlackRock's LifePath Paycheck series, by contrast, start when investors hit age 55. The annuity makes up 8% of the overall portfolio to start and climbs to 30% over the next 10 years. In both series, the annuities have the risk-and-return profile of a broad-market bond fund.

Both the BlackRock LifePath Paycheck and the Nuveen Lifecycle Income series allow investors to choose when to turn on the income. At what age those payments can begin, however, depends on the strategy.

Investors can also choose not to turn on the income feature if they don't want or need it.

Plus, the annuities are institutionally priced (read: less expensive). There's no transaction fee or sales charge related to the annuity part of the target-date strategies, though there is a fee that the insurance company pockets. According to Nuveen, it is reflected in the annuity payout.

Expect more retirement funds with annuities to appear in workplace retirement plans. "Within 10 years, target-date funds with income are going to be the main thing in retirement plans," says BlackRock's Ackerley.

How do target managed payout funds work to provide me with income in retirement?

Not all retirement income strategies in 401(k) plans are tied to annuities. The Fidelity Managed Retirement target-date funds employ a cash-withdrawal strategy that starts at 4% of assets and gradually increases over time as you age. Choose the fund that aligns closest to the year you turn 70.

Experts set the glide path and do the ongoing asset allocation for these 401(k) offerings, as well as create a payout schedule for you.

"The idea is to provide stable payments and still have a remaining balance," says Sarah O'Toole, an institutional portfolio manager at Fidelity.

T. Rowe Price has a 401(k) plan offering called Retirement Income 2020 that aims to deliver a payout of 4% to 5% each year in monthly distributions, but it depends on the fund's return. There are only two vintages so far: 2020 and 2025.

"When the portfolio does well, the payout goes up. When it doesn't, the payout goes down a bit," says fund co-manager Andrew Jacobs van Merlen. These strategies are also available to retail investors as mutual funds (more on them later).

What are the top retirement income funds to look for?

If your 401(k) plan doesn't offer retirement income funds like the ones we just mentioned, or a defined-contribution plan isn't available to you, you have a handful of mutual funds and financial services to consider.

Unfortunately, none feature the guaranteed income of an annuity.

We should note that retirement income funds aren't a new idea. Several firms, including Fidelity and Vanguard, launched managed-payout funds in 2007 and 2008 that promised to provide a steady income stream.

The timing was terrible (around the arrival of the Global Financial Crisis). The funds didn't catch on.

That said, the stars are aligning for retirement income funds today: More retirees are looking for help managing income, interest rates are higher and the stock market is back at record highs.

We don't expect you to put all your eggs in one basket – or one fund – to create a workable retirement income strategy. In most cases, retirees should consider generating cash flow from multiple strategies and sources.

"You'll need an array of tools and products," says T. Rowe Price's Jacobs van Merlen, taking into consideration the risks you're willing to take, how long you'll live and how much you've already saved, among other things. Bear that in mind as you peruse the following options.

The aforementioned T. Rowe Price Retirement Income 2020 (TRLAX, expense ratio 0.51%) is available as a mutual fund to individual investors.

A 2025 version launched last year and trades under the ticker symbol TRRHX with a slightly higher expense ratio of 0.53%. The minimum investment for TRLAX is $25,000 and $2,500 for TRRHX.