10 Great Mutual Funds to Invest In for the Long Haul

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published 19 October 2020

If you're planning 10, 20, 30 years down the road, and you're trying to decide on mutual funds to invest in over a very long stretch, we've got some good news, and some bad news.

The bad news is: There's no "silver bullet." What might be a great fund for your neighbor might not be the one for you – after all, your goals, risk tolerance and investment horizon might be different.

Below-average expenses: If all else is equal, lower expenses translate to superior long-term returns because more of your investment will be compounded over time. It's a little more difficult to pinpoint this relationship when you're comparing actively managed funds, which have different (and sometimes changing) management teams. But generally speaking, even the best fund managers will have a harder time outperforming their benchmark and peers with high expenses.
10-year history minimum: If you're investing for a long time, you want an idea of how management conducts itself over a long time horizon. You want to evaluate funds been in existence for at least the past decade.
Manager tenure (actively managed funds): That said, it's hard to know what to expect if a 50-year-old fund has a brand-new manager at the helm. So for actively managed funds, you ideally want managers that have been around for at least most of the past decade, if not longer. (You can obviously ignore this guidance for index funds.)
Top-tier performance in their category: In general, past performance is not indicative of future results. Still, strong management teams should outperform over time, and you want to compare apples to apples, picking funds that can beat other similar funds.

Disclaimer

Data, provided by Morningstar, is as of Oct. 18. Yields represent the trailing 12-month yield, which is a standard measure for equity funds.

Topics

The Vanguard Group

Vanguard 500 Index Fund Admiral

Fund category: Large blend
Assets under management: $167.0 billion
Dividend yield: 1.7%
Expenses: 0.04%, or $4 annually for every $10,000 invested
10-year annualized return: 13.8%
10-year percentile rank vs. category: 10

As far as the fund's innards go, Vanguard 500 Index Fund is simply an index tracker tethered to the S&P 500. Thus, you're getting exposure to a large chunk of primarily U.S. large-cap stocks, with a little mid-cap exposure too. The fund is weighted by market value, which means the largest stocks have the biggest effect on performance. At the moment, that means outsize exposure to Apple (AAPL, 6.7% of assets), Microsoft (MSFT, 5.7%) and Amazon.com (AMZN, 4.8%), among others.

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Vanguard U.S. Growth Fund Investor

Fund category: Large growth
Assets under management: $38.6 billion
Dividend yield: 0.2%
Expenses: 0.39%
10-year annualized return: 18.4%
10-year percentile rank vs. category: 8

The portfolio is managed by multiple teams: Jackson Square Partners, Wellington, Baillie Gifford Overseas, Jennison Associates and Vanguard Quantitative Equity Group. Collectively, they're looking for blue-chip companies with strong industry positions that can deliver earnings growth for years down the road. That results in a predominantly large-cap lean (78% of assets), with almost all of the rest of assets invested in mid-cap stocks.

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Fidelity Strategic Dividend & Income Fund

Fund category: Large value
Assets under management: $4.4 billion
Dividend yield: 2.1%
Expenses: 0.71%
10-year annualized return: 9.8%
10-year percentile rank vs. category: 7

Fund management typically tries to generate income first, but also capital appreciation, via stocks, real estate-related securities, convertible securities and preferred stocks. At the moment, dividend stocks account for about 51% of assets, convertibles are nearly 22%, real estate investment trusts (REITs) are 13%, preferreds are another 12%, and the rest is sprinkled into master limited partnerships (MLPs) and cash.

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Parnassus Mid-Cap Fund

Fund category: Mid-cap blend
Assets under management: $6.2 billion
Dividend yield: 0.49%
Expenses: 0.99%
10-year annualized return: 12.2%
10-year percentile rank vs. category: 8

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Wasatch Micro Cap Fund Investor

Fund category: Small growth
Assets under management: $869.5 million
Dividend yield: 0.0%
Expenses: 1.66%
10-year annualized return: 17.3%
10-year percentile rank vs. category: 5

WMICX's management is looking to build a roughly 50- to 80-stock portfolio out of three types of growth companies: high-growth (annual earnings growth of 20% or more), core growth (not as fast-growing, but higher in quality) and "fallen angels" (growth firms "that have suffered a temporary setback.") Today, it holds 71 stocks that are heaviest in health care (34%), technology (22%) and consumer discretionary (18%). Top holdings are led by the likes of textile printing technology maker Kornit Digital (KRNT), molecular diagnostic company GenMark Diagnostics (GNMK) and pet food firm Freshpet (FRPT).

A fund holding stocks this small might seem too aggressive, but there's an argument for this kind of exposure in most portfolios. Small caps tend to have lower correlations with the broader market, and they can provide fantastic growth if you have great stock pickers at the helm. That's the case with WMICX, which is better than at least 90% of its competition over the past one-, three-, five- and 10-year periods.

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T. Rowe Price Health Sciences Fund

Fund category: Health
Assets under management: $16.0 billion
Dividend yield: 0.1%
Expenses: 0.76%
10-year annualized return: 20.3%
10-year percentile rank vs. category: 1

PRHSX provides exposure to a wide variety of health care industries, though it is heaviest in health care equipment, biotechnology, pharmaceuticals and health insurance. From these industries, management tries to pluck the stocks with the greatest long-term growth potential. Top holdings currently include stocks such as insurer UnitedHealth Group (UNH), biotech Vertex Pharmaceuticals (VRTX) and diagnostics-and-research firm Thermo Fisher Scientific (TMO).

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Fidelity Select Software and IT Services Portfolio

Fund category: Technology
Assets under management: $11.0 billion
Dividend yield: 0.7%
Expenses: 0.71%
10-year annualized return: 21.4%
10-year percentile rank vs. category: 7

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Fidelity International Capital Appreciation Fund

Fund category: Foreign large growth
Assets under management: $4.6 billion
Dividend yield: 0.5%
Expenses: 1.01%
10-year annualized return: 9.9%
10-year percentile rank vs. category: 8

Management gets its international exposure primarily from companies in developed markets (61% of assets), though it also invests in emerging-market companies (23%) and even domestic equities with high international exposure. Interestingly, the U.S. is the single-highest country weight, but at only 15%; China (13%), Japan (11%) and Switzerland (9%) are among a couple dozen countries represented. And while all sectors are represented in some way, technology is tops at 22%, followed by consumer discretionary (18%) and industrials (14%). Top holdings include names that are familiar to most investors and many consumers, including China's Alibaba (BABA), Taiwan Semiconductor (TSM) and Switzerland's Nestle (NSRGY).

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Vanguard Wellington Fund Investor

Fund category: Moderate allocation
Assets under management: $10.7 billion
SEC yield: 1.6%*
Expenses: 0.25%
10-year annualized return: 9.7%
10-year percentile rank vs. category: 11

The stock portfolio is a tight group of fewer than 60 stocks that's most concentrated in information technology, health care and financials, and minimal on energy, real estate and materials. Top holdings include Microsoft, Alphabet, Apple and McDonald's (MCD) at present. It also holds nearly 1,100 investment-grade bonds with an average duration of 8.2 years, meaning that a 1-percentage-point increase in rates should cause those bonds to decline by about 8.2%.

Despite a heavy slug in bonds, VWELX has produced an average annual return of almost 10% over the past decade. That's better than 89% of its peers, and that well-above-average performance has come with just category-average risk. But what really makes Wellington stand out is a laughably low fee of just 0.25% annually – one of the lowest costs in the space, and 59 basis points lower than the moderate-allocation average.

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Fidelity Total Bond Fund

Fund category: Intermediate core-plus bond
Assets under management: $31.3 billion
SEC yield: 2.1%
Expenses: 0.45%
10-year annualized return: 4.4%
10-year percentile rank vs. category: 25

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Kent Thune, CFP, is a financial professional that helps individuals and businesses achieve their goals through a variety of delivery methods, including investment advice, financial planning and writing.