2022's Best Mutual Funds in 401(k) Retirement Plans
A key to smart retirement saving: spreading your portfolio across a few of the best mutual funds in your 401(k) plan. Here are the 30 top options available as we enter 2022.
Deciding which mutual funds to hold within your 401(k) can be intimidating, the array of choices dizzying and maybe even paralyzing.
But it doesn't have to be.
Every year, with the help of financial data firm BrightScope, a financial data firm that rates workplace retirement savings plans, we analyze the 100 mutual funds with the most assets in 401(k) and other defined-contribution plans, and rate them Buy, Hold or Sell. Our goal: to guide you toward the best mutual funds likely to be available in your workplace plan.
In the end, a cool 30 funds, which we'll describe in detail below, won our seal of approval. But you'll want to pay attention to the fine print. Some funds are appropriate for aggressive investors; others are geared for moderate savers.
We'll also point out that we didn't weigh in on index funds. That's because choosing a good index fund always rests on three simple questions: 1.) Which index do you want to emulate? 2.) How well has the fund done in matching that index? 3.) How much does the fund charge? Generally speaking, however, we have no issues with any of the index funds listed in the top 100.
Assessing actively managed mutual funds is a different beast. We look at each fund's long-term returns and year-by-year performance, as well as its volatility and how it fares in difficult markets. We also consider manager tenure, fees and other factors.
Here are the 30 best mutual funds for 401(k) retirement savers as we enter 2022, plucked out of the nation's 100 most popular options. Your 401(k) probably won't offer all of these funds, but it's likely that at least some will be available. While some might be suitable for your personal situation, and others might not be, each mutual fund stands out for its quality, making it a prime choice for its respective category.
Returns and data are as of Nov. 22, unless otherwise noted, and are gathered for the share class with the lowest required minimum initial investment – typically the Investor share class or A share class. The share class available in your 401(k) plan may be different. Funds are listed in reverse order of their popularity within 401(k) plans.
JPMorgan Equity Income
- Symbol: OIEIX
- Expense ratio: 0.96%
- 1-year return: 27.0%
- 3-year annualized return: 14.5%
- 5-year annualized return: 12.7%
- 10-year annualized return: 13.6%
- Rank among the top 401(k) funds: #97
- Best for: Value-oriented stock exposure
Outside of 401(k) plans (or other similar employer-sponsored retirement savings plans), JPMorgan Equity Income closed to new investors in August 2021. But if your 401(k) plan offers the fund, those rules don't apply. You can buy shares at any time as a first-timer.
Consider yourself lucky.
OIEIX is one of the best 401(k) mutual funds for investors who want a value-oriented stock product to round out their portfolio. Lead manager Clare Hart and her comanagers, Andrew Brandon and David Silberman, look for quality firms with attractive dividend yields of at least 2% at the time of purchase. They favor companies with consistent earnings, high return on invested capital and durable franchises. The fund's top holdings include Comcast (CMCSA), UnitedHealth Group (UNH), BlackRock (BLK) and Bank of America (BAC).
The dividend tilt pushes the fund into the large-company value category, which has lagged the broad market. For example, JPMorgan Equity Income has returned 9.0% on average over the past 15 years; that trails the S&P 500, which gained 10.6% annually over the same period.
But compared with other large value funds, OIEIX is a consistent winner. It outpaced its peers – funds that invest in large, value-priced companies – in eight of the past 10 full calendar years.
The fund, which yields 1.3% at present, is a solid choice for investors looking for value-stock exposure.
Vanguard Wellesley Income
- Symbol: VWINX
- Expense ratio: 0.22%
- 1-year return: 8.8%
- 3-year annualized return: 10.2%
- 5-year annualized return: 8.0%
- 10-year annualized return: 7.9%
- Rank among the top 401(k) funds: #96
- Best for: Conservative investors
Vanguard Wellesley Income celebrated its 50th anniversary in July. But it's not the oldest stock-and-bond fund in Vanguard's stable. That honor goes to Vanguard Wellington, which we'll get to momentarily.
But unlike Wellington, Wellesley Income tilts more toward bonds than stocks. Two-thirds of its assets are bonds, while the rest is stocks. (Wellington holds more stocks than bonds).
The hefty bond holding makes for a steady fund. Over the past half century, according to Dan Wiener, editor of The Independent Adviser for Vanguard Investors, Wellesley Income's "standout feature is its steadiness."
Steadiness and muted returns often go hand in hand, however. Over the past 15 years, VWINX's 7.1% annualized return doesn't keep pace with the broad market, but it beats 96% of its peers: funds that allocate 30% to 50% of assets to stocks.
Michael Reckmeyer runs the stock side and Loren Moran picks the bonds. Both managers are veterans of Wellington Management – an investment firm with long-term ties that subadvises many of Vanguard's best-known actively managed funds. Similar to Vanguard Equity-Income, which Reckmeyer also helps to manage, we'll need to keep an eye on VWINX going forward.
With the heavy load of bonds in its portfolio, Wellesley Income is best suited to conservative investors.
Vanguard U.S. Growth
- Symbol: VWUSX
- Expense ratio: 0.38%
- 1-year return: 28.2%
- 3-year annualized return: 33.7%
- 5-year annualized return: 26.5%
- 10-year annualized return: 20.9%
- Rank among the top 401(k) funds: #91
- Best for: Steely investors with a long time horizon who want exposure to fast-growing, large companies and can withstand a lot of volatility
Vanguard U.S. Growth has put up some good returns in certain years – lately, a 59% return in 2020 – but it has had to deal with a lot of change. For starters, it has twice absorbed the assets of a poorly performing peer fund – Growth Equity in 2014 and Morgan Growth in 2019.
Then there's the constant rotation of subadvisers at the fund. According to Morningstar, eight partial manager changes have occurred at the fund since 2010. The latest on took place in early 2021. Vanguard jettisoned investment firm Jackson Square as a manager after 11 years. Four subadvisers remain: Wellington Management, Jennison Associates and Baillie Gifford – each runs roughly 28% of assets – and Vanguard's in-house quantitative equity group, which runs the rest. This year, the quant group is undergoing its own reshuffling; longtime members of the team James Stetler and Binbin Guo both retired.
All that moving around of parts is troubling, and it makes assessing the long-term merits of a fund tricky. But based on more recent performance, things are going swimmingly. VWUSX's five-year annualized return beats the S&P 500, most of its peer group and even Vanguard Primecap, the firm's venerated growth-company fund. It has been a bumpy ride, though. Over the past five years, this Vanguard fund has experienced above-average volatility compared with all large-company growth funds.
If U.S. Growth is the only actively managed large-company growth fund offered in your 401(k), and you have the stomach for a lot of volatility, it's a solid option. If you're not that kind of investor, however, you might consider other options in your plan that come with less uncertainty (as far as management goes) and a little more steadiness in performance.
JPMorgan Large Cap Growth
- Symbol: OLGAX
- Expense ratio: 0.94%
- 1-year return: 31.3%
- 3-year annualized return: 36.5%
- 5-year annualized return: 29.3%
- 10-year annualized return: 20.2%
- Rank among the top 401(k) funds: #86
- Best for: Exposure to fast-growing companies
Between 2004 and late 2020, Giri Devulapally had run JPMorgan Large Cap Growth as the lone manager. But he took on three new comanagers in November 2020. Since then, the fund has fallen behind its peers: funds that invest in large, growing U.S. companies.
This isn't unusual for the short-term when new managers arrive on the scene. But on his own, Devulapally had a fairly steady, peer-beating record. Over the past 15 years, JPMorgan Large Cap Growth has outpaced 90% of its peers and the S&P 500 with a 14.7% annualized return.
The managers at JPMorgan Large Cap Growth invest in mostly large companies that can deliver significant growth over the next three to five years. These companies typically do business in a market undergoing meaningful change, have sustainable competitive advantages, proven strong execution and upward momentum in share price. The managers like leading agricultural and heavy machinery maker Deere (DE), for example, because it has been developing technology that helps farmers all over the world increase productivity. And they like Freeport-McMoRan (FCX), a mining company, because it stands to benefit from an increase demand for copper to make electric vehicles. The fund's top holdings, at last report, are Alphabet (GOOGL), Apple (AAPL) and Microsoft (MSFT).
OLGAX is a good mutual fund for investors who want to boost exposure in their 401(k) to fast-growing companies.
Fidelity Puritan
- Symbol: FPURX
- Expense ratio: 0.52%
- 1-year return: 23.1%
- 3-year annualized return: 19.0%
- 5-year annualized return: 14.7%
- 10-year annualized return: 12.7%
- Rank among the top 401(k) funds: #84
- Best for: Moderate investors who want an all-in-one stock-and-bond fund
Manager Daniel Kelley took over Fidelity Puritan in mid-2018, but he appears to be finding his way. That's why we're upgrading this fund from Hold to Buy. The fund's 19.0% annualized return since mid-2018 easily outpaces the fund's benchmark, a 60/40 blend of the S&P 500 index and Bloomberg U.S. Aggregate Bond index, as well as the 13.2% annualized return of the typical balanced fund.
On the stock side, Kelley relies on fundamental and quantitative analysis to build the portfolio. He favors companies that offer earnings and revenue growth at a reasonable price. FPURX currently has a high stake at 70% of assets. On the bond side, which includes a roughly 5% stake in high-yield bonds, the goal is to find attractively priced bonds with a disciplined eye on risk management.
Lately, Kelley has loaded up on retail stocks that might benefit from pent-up demand from consumers as well as financials, which stand to gain from improved loan demand as the economy reopens. A rise in interest rates, if it happens, would be a bonus for banks, too.
On the bond side, rising inflation and interest rates are a concern. (Bond prices and interest rates move in opposite directions.) So Puritan is currently tilting toward investment-grade corporate bonds, especially those issued by financials, given the banks' strong balance sheets and attractive valuations.
Vanguard Explorer
- Symbol: VEXPX
- Expense ratio: 0.41%
- 1-year return: 31.1%
- 3-year annualized return: 23.9%
- 5-year annualized return: 19.6%
- 10-year annualized return: 16.9%
- Rank among the top 401(k) funds: #78
- Best for: Aggressive-growth-minded investors looking for exposure to small-company stocks
Vanguard Explorer holds stock in growing small and midsize companies. It's one of a handful of small-company stock funds that rank among the top 100 401(k) funds. But while many are index-based, this one is actively managed. In fact, in keeping with the Vanguard way, many have a hand in VEXPX.
Managers from five different firms work independently, applying their own process to run their portions of the fund's assets:
- Wellington Management, for example, picks stocks with higher growth potential relative to their valuations.
- ClearBridge Investments focuses on industry leaders that generate substantial free cash flow (money left over after necessary expenses to sustain the business) and make wise capital allocation decisions.
- ArrowMark Colorado Holdings prefers high-quality companies with strong competitive advantages in industries with high barriers to entry.
- Stephens Investment Management and Vanguard's quantitative equity group round out the investing subadvisory team.
The hodgepodge management team results in returns that are just above-average. But the portfolio is enormous, with close to 780 stocks, and the fund has $24.7 billion in total assets, which makes VEXPX the biggest actively managed small-company fund in the country. Finally, multiple changes in subadvisory managers over the years – and even recently – makes it difficult to confidently assess how the fund will fare over a full market cycle.
Seven of the 10 managers on the fund have been in place for nearly five years. And in each of the four full calendar years since the start of 2017, Vanguard Explorer has outpaced the Russell 2000. In other words, you have been better off in Explorer than in a small-company index fund over that time.
Just bear in mind: Because small-company stocks tend to be more volatile than large-company stocks, VEXPX should be a held as a complement to a core holding in large-company stock fund or a total stock market fund.
Fidelity Low-Priced Stock
- Symbol: FLPSX
- Expense ratio: 0.78%
- 1-year return: 30.0%
- 3-year annualized return: 15.9%
- 5-year annualized return: 12.9%
- 10-year annualized return: 13.1%
- Rank among the top 401(k) funds: #77
- Best for: Investors looking for a solid value-oriented fund
Joel Tillinghast was a Fidelity analyst covering tobacco and personal-care-product firms when he came up with a concept for a new fund more than 30 years ago. The idea was to find good values in high-quality small companies and out-of-favor larger firms.
Fidelity higher-ups loved it. So in late 1989, Fidelity Low-Priced Stock launched.
FLPSX has been an unequivocal success since then, with Tillinghast at the helm, easily outperforming average annual gain in the S&P 500, the Russell 2000 small-company index, the Russell mid-cap benchmark and nearly all small- or midsize-company stock funds. Morningstar recently named Tillinghast its outstanding portfolio manager of 2021.
Some things have changed over the years. Tillinghast now has five comanagers, though he still runs about 95% of fund's assets. In the fund's early days, stocks had to be $15 or less at the time of purchase. A few years ago, the threshold jumped to $35, or the stock has to boast an earnings yield that falls at or above the median for the small-company Russell 2000 index, which is still the fund's benchmark. Low-Priced Stock also owns more foreign stocks than it did in its earliest days. At last report, 35% of assets were invested in international shares, mostly in Europe and Japan.
Finally, FLPSX was always focused on companies of all sizes, but early on, it tilted heavily toward small firms. Now, the fund is evenly split among large-, midsize- and small-company stocks.
But Tillinghast and his comanagers still look for companies with sturdy profits, little debt and a sustainable competitive edge over peers. He's not "stingy," says Morningstar analyst Robby Greengold, and he doesn't "chase fads."
Vanguard Inflation-Protected Securities
- Symbol: VIPSX
- Expense ratio: 0.20%
- 1-year return: 7.8%
- 3-year annualized return: 8.4%
- 5-year annualized return: 5.1%
- 10-year annualized return: 2.9%
- Rank among the top 401(k) funds: #76
- Best for: Older investors looking to hedge against inflation (in small doses)
With inflation running higher than it has in nearly a decade, Treasury Inflation-Protected Securities (TIPS) are more in the news. Annual inflation for the 12-month period ending in October, the most recent data available, was 6.2%. That's a little more than triple the roughly 2% rate of annual inflation over each the previous five calendar years.
Investors who want to stay ahead of rising consumer prices typically turn to TIPS because on top of a guaranteed rate of interest, the principal of the bond moves in step with the rate of inflation.
But yields on TIPS have been negative for months. Vanguard Inflation-Protected Securities' current yield, for instance, is negative 1.8%. That doesn't mean, however, that you will earn a negative return in this fund. Rather, the fund's return will be the rate of inflation less the negative yield. Over the past 12 months, for instance, despite negative yields, VIPSX has gained 7.8%.
Longtime fund manager Gemma Wright-Casparius favors short-term maturity TIPS these days. Almost half of the fund's assets are invested in TIPS with maturities of less than five years. Vanguard studies show that short-term TIPS are more stable during periods of inflation surprises than medium- and long-term TIPS.
Vanguard Inflation Protected Securities is best for retired, or nearly retired, investors. Younger investors can fend off inflation with the returns in their hefty stock portfolios, and annual salary raises will help, too. However, retirees typically don't have either of those advantages.
Fidelity Diversified International
- Symbol: FDIVX
- Expense ratio: 1.05%
- 1-year return: 19.8%
- 3-year annualized return: 19.0%
- 5-year annualized return: 13.8%
- 10-year annualized return: 10.7%
- Rank among the top 401(k) funds: #74
- Best for: Foreign stock exposure
It's hard to muster up excitement about investing overseas, because U.S. stocks have done so much better than foreign shares.
As foreign-stock funds go, Fidelity Diversified International, which invests mostly in large companies with durable or improving growth prospects, is a solid choice. In fact, this Fidelity fund has beaten the index – the MSCI EAFE, which tracks foreign stocks in developed countries – over eight of the past 11 full calendar years.
William Bower has run FDIVX for more than 20 years. He favors high-quality businesses with competitive advantages and consistent profitability. The fund's top country exposures include Japan, France and the U.K. But its investments aren't limited to developed countries. In fact, 10% of the fund is invested in emerging markets, mostly in Asia. Its top holdings are ASML Holding (ASML), a maker of photolithography systems used to make semiconductor chips, pharmaceutical firm Roche Holding (RHHBY) and luxury goods maker LVMH Moet Hennessy Louis Vuitton (LVMUY).
There are certainly better actively managed funds out there, but those funds might not be available to you in our plan. In this review, we must consider that this might be the only active foreign fund available in the plan. In that context, Fidelity Diversified International is a fine choice.
T. Rowe Price New Horizons
- Symbol: PRNHX
- Expense ratio: 0.75%
- 1-year return: 23.3%
- 3-year annualized return: 33.3%
- 5-year annualized return: 27.3%
- 10-year annualized return: 22.2%
- Rank among the top 401(k) funds: #66
- Best for: Aggressive minded investors with a long-term view looking for exposure to small and midsize companies
T. Rowe Price New Horizons has entered a new chapter with manager Joshua Spencer, who stepped in after superstar Henry Ellenbogen abruptly left T. Rowe Price in April 2019. So far, it has been thrilling. Since Spencer took over, he's pounded the competition with a 33.1% annualized return, beating 94% of its peers – funds that invest in midsize, growing companies – and far and away ahead of the Russell Midcap Index.
PRNHX is closed to new investors, but if it's offered in your employer-sponsored retirement savings plan, you're free to buy shares as a first-time investor in the fund.
Ellenbogen was a tough act to follow. During his nine-year tenure as manager of New Horizons, the fund posted an 18.7% annualized return, beating every diversified stock index imaginable, and all but one U.S. diversified stock fund: a small-company fund called Virtus KAR Small-Cap Growth (PXSGX).
But Spencer has made his mark on PRNHX. Like Ellenbogen, he looks for small, undiscovered emerging companies that offer the potential for accelerated earnings growth because of new products, a revitalized management team, or a structural shift in the economy. Investments in private companies – including shoemaker Allbirds (BIRD), which only very recently went public; apparel company Rent the Runway; and Tempus Labs, a biotech firm – represent 5% of the fund's assets and offer the promise of enhanced returns.
Although Spencer focuses on companies with $7 billion or less in market value at the time of purchase, like his predecessor, he'll hang on as long as the company is growing. It's one reason New Horizons, which started under Ellenbogen as a small-company growth fund, is now classified a mid-cap growth fund.
PRNHX is a solid mutual fund for investors who want to invest early in companies with solid growth prospects.
PGIM Total Return Bond
- Symbol: PDBAX
- Expense ratio: 0.76%
- 1-year return: -1.7%
- 3-year annualized return: 5.8%
- 5-year annualized return: 4.3%
- 10-year annualized return: 4.1%
- Rank among the top 401(k) funds: #64
- Best for: Bond investors with some stomach for volatility looking for income and capital appreciation in a diversified core bond fund
PGIM Total Return Bond consistently beats the market. In seven of the past 10 full calendar years (between 2011 and 2020), the mutual fund has beaten the Bloomberg U.S. Aggregate Bond index. That's better than the typical intermediate-term core-plus bond fund (these funds can invest up to 20% in high-yield debt). But interested investors should know, the extra oomph in returns comes with a little bit more volatility than its peers or the benchmark, too.
PDBAX can invest in all sectors of the fixed-income market. Currently, its four comanagers favor investment-grade corporate debt and asset-backed securities, which they think offer more opportunity than Treasuries and government-guaranteed mortgage-backed securities, high-yield IOUs and foreign bonds.
The fund currently yields 1.6%.
Fidelity Blue Chip Growth
- Symbol: FBGRX
- Expense ratio: 0.79%
- 1-year return: 38.8%
- 3-year annualized return: 40.0%
- 5-year annualized return: 30.3%
- 10-year annualized return: 23.0%
- Rank among the top 401(k) funds: #63
- Best for: Aggressive investors who want to invest in fast-growing, innovative companies
Fidelity Blue Chip Growth is a member of the Kiplinger 25, and is among the best-performing 401(k) mutual funds you can find. Manager Sonu Kalra's annualized 10-year return of 23.0% outpaces 97% of all large-company growth funds and the S&P 500.
"What we're trying to do with this fund is identify companies where the market is mispricing not just the absolute rate of growth but the durability of that growth," he says. "We do that by trying to identify companies that are participating in large underpenetrated markets."
Kalra divides the portfolio into three buckets:
Secular growers, he says, are businesses that are benefiting from growing trends such as e-commerce, cloud technology, electric vehicles.
Cyclical growers include companies that are in the sweet spot of the business cycle – home builders, for instance, benefiting from the move out of the city during COVID 19, or energy companies on the rebound after the pandemic shut-down.
Kalra calls the last bucket "opportunistic growers." It includes companies that have a catalyst to drive growth going forward – a new manager or a new product. American Eagle Outfitters (AEO), for instance, is a retailer with a brand of intimate wear that's growing rapidly and an online business that's thriving.
Investors looking for an actively managed fund that can beat the S&P 500 haven't been disappointed in the 12 years that Kalra has been running the fund. We don't expect that to change.
Fidelity Balanced
- Symbol: FBALX
- Expense ratio: 0.52%
- 1-year return: 23.9%
- 3-year annualized return: 20.0%
- 5-year annualized return: 15.1%
- 10-year annualized return: 12.8%
- Rank among the top 401(k) funds: #59
- Best for: Investors who want an all-in-one, stock-and-bond portfolio
Funds that hold stocks and bonds, otherwise known as balanced funds, are typically considered moderate all-in-one funds. But Fidelity Balanced is a little turbocharged. It typically holds an above-average stake in stocks compared with the peer group, funds that allocate 50% to 70% of assets to stocks.
At last report, FBALX held 72% of its assets in stocks – nearly 10 percentage points more than the typical balanced fund. On the bond side, the fund is a bit more staid than others, generally speaking. Investment-grade securities, rated between triple-A and triple-B, fill most of the bond portfolio – more than the typical balanced fund holds in high-grade bonds – and represent 23% of the entire portfolio. Junk-rated or below bonds make up just 1% of the fund's assets.
This Fidelity fund has a unique setup. Über-manager Robert Stansky makes the big-picture decisions of how much of the portfolio should own in stocks and in bonds. Eight stock pickers and four bond pickers, who specialize in specific sectors, do the specific security selection. U.S. government bonds dominate the bond portfolio. The usual suspects – including Microsoft, Apple, Amazon.com (AMZN) and Alphabet – top the stock side.
Balanced funds are good choices for investors who want a no-fuss, all-in-one fund. But this one is more aggressive than others. That means more volatility in down markets, so bear that in mind when you invest.
But overall, FBALX remains among the best Fidelity funds. The portfolio positioning has helped Fidelity Balanced deliver a 10-year annualized return that beats 96% of its peers. It also results in a yield of about 0.8% at present.
American Funds New Perspective
- Symbol: ANWPX
- Expense ratio: 0.76%
- 1-year return: 29.2
- 3-year annualized return: 26.0%
- 5-year annualized return: 20.2%
- 10-year annualized return: 15.9%
- Rank among the top 401(k) funds: #56
- Best for: Global stock exposure
American Funds New Perspective fund splits its portfolio between U.S. and foreign stocks. It's a solid option for investors looking to beef up their foreign stock exposure, but who don't want to go all-in on a foreign-stock fund.
Seven managers divide the portfolio's $140 billion in assets and invest their own sleeve as they see fit. But they all must invest in companies that receive a meaningful share of sales and operations outside of their home base. Together they have constructed a roughly 300-stock portfolio of mostly large companies with above-average earnings growth. Tesla (TSLA), Microsoft and Facebook platform Meta Platforms (FB) are the fund's top holdings.
Next to its peers – funds that invest in foreign and U.S. large companies – New Perspective has stayed above average for the majority of each of the past 11 calendar years.
Vanguard Equity-Income
- Symbol: VEIPX
- Expense ratio: 0.28%
- 1-year return: 27.6%
- 3-year annualized return: 14.1%
- 5-year annualized return: 12.5%
- 10-year annualized return: 13.7%
- Rank among the top 401(k) funds: #52
- Best for: Investors looking for a steady dividend fund
Two longtime fund managers recently stepped down at Vanguard Equity-Income, which is a member of the Kiplinger 25. But we're not adjusting our Buy recommendation for the fund – yet.
Although manager changes can be tricky, in VEIPX's case, the managers who left are part of Vanguard's in-house quantitative equity group, which relies on a complex algorithm to choose stocks. That computer model shouldn't change with the new guard. Plus, the quant group runs just one-third of the portfolio.
However, the lion's share of the portfolio is run by Wellington Management's Michael Reckmeyer, who recently announced plans to retire in June 2022. That could affect our thoughts on the fund moving forward, so stay tuned.
Reckmeyer favors high-quality companies that pay increasingly higher dividends over time. "We focus on sustainable payouts and companies that increase dividends on an annual basis," he says, "because over the long haul, dividends drive 40% of returns over the years."
But Reckmeyer likes a good bargain. He prefers to step in when the market overreacts to bad short-term news. "It's a bit of a contrarian take to dividend investing," he says.
Vanguard Equity-Income might not beat the S&P 500 over time. But it's not too far behind, and the ride is smoother than that of the broad index. Plus, the fund's dividend yield, 2.2%, beats the current 1.3% yield of the S&P 500.
T. Rowe Price Mid-Cap Growth
- Symbol: RPMGX
- Expense ratio: 0.73%
- 1-year return: 23.9%
- 3-year annualized return: 21.6%
- 5-year annualized return: 18.4%
- 10-year annualized return: 16.8%
- Rank among the top 401(k) funds: #50
- Best for: Investors looking for long-term growth
Manager Brian Berghuis has run T. Rowe Price Mid-Cap Growth for close to three decades (it will be 30 years in June 2022), delivering a 14.3% annualized return over the period. No other diversified U.S. stock fund manager in the country has done better – for as long. Although three other diversified U.S. stock funds sport slightly higher annualized returns over that period, none were earned by the same manager over the entire period.
RPMGX has been closed to new investors since 2010. But if Mid-Cap Growth is offered in your 401(k), that doesn't matter. Participants in a retirement-savings plan that includes Mid-Cap Growth as an investment option can invest at any time.
Now the only question is how much longer Berghuis, who just entered his 60s, will stick around. He has not announced any plans to retire. That's good news. But Mid-Cap Growth has taken on associate managers, which at T. Rowe Price is sometimes a signal (albeit a distant one) that a manager transition is in the works. The firm prefers to make changes slowly, and adding associate managers to a fund a year in advance of a manager change is not uncommon.
Berghuis still is lead portfolio manager and is ultimately responsible for portfolio decisions, but Donald Easley and Ashley Woodruff were recently named associate managers on the fund; John Wakeman has been an associate portfolio manager since 1992.
We're envious of those 401(k) plan participants who can invest in RPMGX. It's all-around one of the best T. Rowe Price funds on offer.
T. Rowe Price Growth Stock
- Symbol: PRGFX
- Expense ratio: 0.64%
- 1-year return: 32.4%
- 3-year annualized return: 29.4%
- 5-year annualized return: 23.9%
- 10-year annualized return: 20.0%
- Rank among the top 401(k) funds: #48
- Best for: Investors looking for extra exposure to large, fast-growing companies
T. Rowe Price Growth Stock is one of three large-company growth funds from T. Rowe Price – along with Blue Chip Growth (TRBCX) and Large-Cap Growth I (TRLGX) – that rank among the most widely held 401(k) funds. That's hardly surprising given the firm's rich record with growth investing. Chances are your 401(k) plan only offers one of them, so you won't have to choose between them.
PRGFX is a decent choice for investors looking for a good growth fund. Manager Joe Fath likes to invest in companies that feature one or more of the following characteristics: industry leadership in a lucrative part of the economy, superior growth in earnings and cash flow, an ability to sustain or expand earnings momentum even during tough economic times. The traits typically lead Fath to concentrate on four sectors: information technology, consumer discretionary, communications services and healthcare.
In mid-2021, PRGFX shareholders agreed to reclassify the fund as non-diversified, instead of diversified, meaning the fund can invest a greater portion of its assets in fewer issuers. This could lead to more volatility, but the firm has said publicly that it believes reclassification won't "substantially affect the way a fund is currently managed."
Fath hasn't made significant changes to the portfolio, yet. In late 2020, the fund's biggest 10 holdings in the fund represented 45.9% of the fund's assets. At the end of September 2021 – three months after Growth Stock was reclassified – the top 10 holdings represented 46.9% of the fund's assets.
PRGFX is one of the best mutual funds available in 401(k) plans, and a solid growth stock fund for investors looking to spice up their core portfolio.
T. Rowe Price Large-Cap Growth Class I
- Symbol: TRLGX
- Expense ratio: 0.56%
- 1-year return: 33.2%
- 3-year annualized return: 29.9%
- 5-year annualized return: 26.2%
- 10-year annualized return: 21.4%
- Rank among the top 401(k) funds: #46
- Best for: Aggressive investors looking for above-average returns
Regular mom-and-pop investors can't invest in T. Rowe Price Large-Cap Growth I, which has a $1 million minimum and is designed for institutional clients, such as a 401(k) plan. But it's one of T. Rowe Price's best funds. And it sports a well-below-average 0.56% expense ratio, the lowest of all the T. Rowe price funds mentioned in this story.
Manager Taymour Tamaddon took over in early 2017, so we limit our scrutiny to the length of his tenure. But Tamaddon has delivered, outperforming his peers – funds that invest in large, growing companies – as well as the S&P 500.
Tamaddon, like almost every other U.S. growth stock fund manager, holds the usual suspects at the top of his portfolio. but he takes sizeable bets. Alphabet, Microsoft and Amazon.com, at last report, were the top three holdings and represented nearly 27% of the fund's assets.
Along with Blue Chip Growth and Growth Stock, Large-Cap Growth was also reclassified in mid-2021 as a non-diversified fund with the SEC, which allows it to concentrate in a certain sector, industry or geographic area. Tamaddon already takes big stakes in specific stocks. But further concentration might add to the fund's volatility.
Even so, as long as you can stomach the bumps along the way, T. Rowe Price Large-Cap Growth is a solid choice for investors looking to tap into fast-growing U.S. companies.
Dodge & Cox International Stock
- Symbol: DODFX
- Expense ratio: 0.63%
- 1-year return: 17.9%
- 3-year annualized return: 9.3%
- 5-year annualized return: 7.6%
- 10-year annualized return: 7.9%
- Rank among the top 401(k) funds: #42
- Best for: Foreign stock exposure
At Dodge & Cox International Stock, seven managers work together doing meticulous research on every prospective security. They love a good bargain, which makes them a bit contrarian. When any given company shares are down because of bad news or economic headwinds, you can bet that DODFX managers are poking around. They're looking to find good deals on companies with a competitive edge, good growth prospects and smart executives.
International has leeway to invest in companies in the developed and emerging worlds. At last report, 20% of the fund's assets were invested in emerging-markets countries, including Brazil, China, India, Mexico and Peru. But firms based in Europe and the U.K. comprise most of the portfolio. Drug companies GlaxoSmithKline (GSK) and Sanofi (SNY) are the fund's top holdings.
DODFX has a big position in pharmaceuticals stocks – 16% of the fund's assets – because the managers view them as a compelling pocket of the market. "Strong innovation pipelines should drive attractive earnings growth over the coming years," say the managers.
Foreign stocks have trailed U.S. stocks in recent years, and that's still the case today. Over the past 12 months, the MSCI EAFE index, which tracks stocks in foreign developed countries, put up a decent 17.0% return, but that lags the 33.0% gain in the S&P 500. Emerging-markets stocks, as measured by the MSCI Emerging Markets index, also trailed, with a 6.5% gain over the past year.
Dodge & Cox International Stock has at least done better than the international indexes, with a roughly 18% return over the past 12 months, in part because the value-priced shares have done better.
DODFX is a solid 401(k) mutual fund for investors who want an actively managed foreign-stock portfolio. But some patience is required for this contrarian strategy.
Dodge & Cox Income
- Symbol: DODIX
- Expense ratio: 0.42%
- 1-year return: 0.1%
- 3-year annualized return: 6.3%
- 5-year annualized return: 4.5%
- 10-year annualized return: 4.2%
- Rank among the top 401(k) funds: #40
- Best for: Patient investors looking for a solid, actively managed intermediate-term bond fund
Dodge & Cox is a 90-year-old company with a steady, consistent investment process. Multiple managers take on each fund.
On Dodge & Cox Income, eight managers with an average of more than two decades of investing experience buy mostly high-quality bonds with an eye toward providing current income and preserving capital. Their hunting grounds include a variety of fixed-income sectors including Treasuries, mortgage- and asset-backed debt, corporate debt and municipal bonds, among others. But they like a good bargain and will tilt toward pockets of the market where they see good opportunities, within the context of their view of the economy and relative yields of securities in bond subsectors, among other factors.
Over each of the past one, three, five, 10 and 15 years, DODIX has beat the Bloomberg U.S. Aggregate Bond index.
Active management counts when it comes to investing in intermediate-term bond funds, and the managers at Dodge & Cox certainly back that up. Before the pandemic, in early 2020, the managers significantly reduced the fund's exposure to corporate bonds because the difference in interest rates between corporate debt and Treasuries with comparable maturities was slim.
That move set DODIX up well for the bond selloff in March 2020 because it had cash at the ready. Many high-quality, creditworthy companies issued long-term debt at yields comparable to junk-rated debt, and the managers snapped up these attractively priced bonds, such as those issued by Anheuser-Busch InBev (BUD), Coca-Cola (KO), Exxon Mobil (XOM), FedEx (FDX), Oracle (ORCL) and T-Mobile US (TMUS).
Corporate bonds went on to have a banner year and helped lift the fund's gain in 2020 to 9.5%, outpacing the 7.5% return in the Bloomberg U.S. Aggregate Bond index, and ranked among the top 23% of its peers: intermediate-term core-plus bond funds. (The core-plus indicates that the fund is allowed to own up to 20% of its assets in high-yield bonds, unlike core bond funds which can hold up to 10%.)
DODIX yields 1.4%.
Vanguard International Growth
- Symbol: VWIGX
- Expense ratio: 0.44%
- 1-year return: 13.0%
- 3-year annualized return: 27.7%
- 5-year annualized return: 21.9%
- 10-year annualized return: 14.6%
- Rank among the top 401(k) funds: #36
- Best for: Foreign stock exposure
We have long lauded Vanguard International Growth as a superstar for delivering above-average returns with below-average risk. But we're feeling a little cautious these days because a key manager is leaving in April 2022.
Investment firm Baillie Gifford is one of two subadvisers that run the fund, but it manages the biggest chunk (70%) of the assets. And James Anderson, a manager since 2003, is leaving. Comanager Thomas Coutts remains, however, and he's been in place since late 2016. Lawrence Burns was named comanager in 2020.
Managers from Schroders run the remaining 30%, and nothing is changing there. Simon Webber has been with the fund since late 2009, though he too, has a new comanager in James Gautrey, who joined in late 2020.
The two firms, both U.K.-based, have slightly different approaches to picking growth stocks; Vanguard chose them to complement each other. Baillie Gifford is willing to pay up for stocks with explosive growth. Schroders' ideal stock is underappreciated but growing fast.
The portfolio holds roughly 120 stocks, mostly in large companies domiciled in developed countries. But China stocks make up 14% of the assets. Hong Kong and India combined represent another 4% or so.
VWIGX has long been one of our favorite international stock funds. But we'll be watching it carefully over the next year or two. Fund manager changes can sometimes (but not always) result in some portfolio volatility as new managers settle in and make their mark.
American Funds American Balanced
- Symbol: ABALX
- Expense ratio: 0.58%
- 1-year return: 17.7%
- 3-year annualized return: 13.4%
- 5-year annualized return: 11.5%
- 10-year annualized return: 12.3%
- Rank among the top 401(k) funds: #31
- Best for: Investors who want an all-in-one fund that holds stocks and bonds
Like other balanced funds, American Funds American Balanced holds stocks and bonds. It is designed, say the managers in a recent report, "to serve as the complete portfolio of a prudent investor."
In other words: Buy shares in this fund, and you're done.
ABALX fine-tunes its blend of stocks and bonds to achieve three goals: conserve capital, provide current income and offer long-term growth. Keeping volatility at bay and delivering steady returns is also a priority. At last report, the fund held 65% of its assets in stocks, 32% in bonds and 3% in cash and other securities. The fund has a current SEC yield of 1.00%.
The portfolio's risk-aware positioning helped in early 2020, when both stocks and bonds plummeted in value during the pandemic's early days. American Balanced sank 22% between February and March 2020, while its typical peer – funds that allocate 50% to 70% in stocks – lost 24%. Indeed, the fund is a peer-beater. Over the past 10 years, American Balanced outpaced 86% of its peers with a 12.3% annualized return.
ABALX is among the best mutual funds you can stash in a 401(k) portfolio. As balanced funds go, it's a standout option.
Harbor Capital Appreciation
- Symbol: HCAIX
- Expense ratio: 1.03%
- 1-year return: 31.6%
- 3-year annualized return: 34.5%
- 5-year annualized return: 26.8%
- 10-year annualized return: 20.4%
- Rank among the top 401(k) funds: #30
- Best for: Investors looking for growth
Managers Sig Segalas and Kathleen McCarragher are the longest tenured managers behind Harbor Capital Appreciation, which counts two others comanagers appointed in 2019, Blair Boyer and Natasha Kuhlkin. But the fund managers also have a team of analysts working alongside them.
And they all work for Jennison Associates as subadvisers running HCAIX.
The managers look for large companies, with at least $1 billion in market value at the time of purchase, with robust earnings and sales growth, high or improving profitability, and strong balance sheets. They're not value investors, but they prefer to buy stocks at prices that are attractive relative to long-term growth prospects. Most of the stocks in the portfolio are in companies that lead their industries, have capable and disciplined managers running the firm, and that conduct substantial research and development.
Capital Appreciation's top holdings are well-known U.S. stocks. Amazon.com, Tesla, Apple, Nvidia (NVDA) and Shopify (SHOP), for instance, topped the portfolio at last report. But some of HCAIX's fund's best performers have been off the beaten path. Foreign stocks comprise 14% of assets, for instance, and stock in Dutch secure payment platform Adyen (AYDEY) climbed 45% over the past 12 months.
Harbor Capital Appreciation has been a standout performer over the years. Its 10- and 15-year annualized returns rank among the top 20% or better of all large-company growth funds. It's consistent, too. The fund has outpaced its peers in seven of the past 10 full calendar years (between 2011 and 2020).
The tradeoff is high volatility. Over the past decade, HCAIX has been more volatile than 91% of its peers. Even so, this is a great long-term choice for investors who want to enhance their exposure to fast-growing companies.
Fidelity Growth Company
- Symbol: FDGRX
- Expense ratio: 0.83%
- 1-year return: 39.2%
- 3-year annualized return: 42.3%
- 5-year annualized return: 31.3%
- 10-year annualized return: 23.9%
- Rank among the top 401(k) funds: #26
- Best for: Aggressive investors looking for to generate wealth
Fidelity Growth Company is Fidelity's best large-company growth fund. Over the past decade, manager Steven Wymer has delivered a 23.9% annualized total return to shareholders, which trounces the S&P 500. Only a dozen or so funds have done better than that over the past 10 years.
Many investors are shut out to Fidelity Growth Company now because it's closed to new investors. But if your 401(k) plan includes FDGRX as an investment option, you can still invest in it, even if you're new to the fund.
Wymer holds close to 500 stocks in the fund, with a heavy tilt toward information technology companies, such as Nvidia, Salesforce.com (CRM) and Shopify, as well as communications services firms, such as Google parent Alphabet, Facebook parent Meta Platforms and Roku (ROKU), the streaming-device company.
Economically sensitive stocks have recently given back some of their leadership to secular growth stocks, Wymer says in a recent report. "The outperformance of a stock or sector in the months ahead will be driven more by individual fundamentals than macro factors or trends," he says. That's why he's focused on companies with a strong outlook based on fundamentals.
If you're lucky enough to have access to FDGRX in your 401(k) plan, buy shares.
Pimco Total Return
- Symbol: PTTAX
- Expense ratio: 0.81%
- 1-year return: -0.9%
- 3-year annualized return: 5.2%
- 5-year annualized return: 3.8%
- 10-year annualized return: 3.5%
- Rank among the top 401(k) funds: #18
- Best for: Bond investors looking for a core intermediate-term bond fund holding
About a decade ago, Pimco Total Return was the biggest bond fund in the country and its manager, Bill Gross, was "the bond king." But in 2014, Gross left the fund, and the firm he cofounded under a cloud after a string of missed big-picture calls on the economy and interest rates. The firm explained the departure was due to "fundamental differences."
Since then, PTTAX has slipped from its perch. It's not the biggest bond fund anymore. But with $72 billion in assets, Pimco Total Return still ranks among the most widely held bond funds in America.
On a total return basis, it's not a dazzler, but the fund is still a solid choice for bond exposure in your 401(k). Over the past five years, well after the dust from Gross's departure settled, the fund has returned 3.8% annualized, just past the 3.6% annualized return in the Bloomberg U.S. Aggregate Bond index.
Mark Kiesel, Scott Mather and Mohit Mittal run Pimco Total Return together, but the fund's process hasn't changed. The firm's investment committee makes the big-picture calls on the economy and interest rates, which guides the managers and analysts as they do their research on security selection and make decisions on what sectors to focus on.
They invest mostly in investment-grade debt; U.S. government-related debt and high-quality corporate credit make up 62% of assets at last report. But the fund also buys junk-rated corporate IOUs (2%), mortgage-backed and asset-backed securities (21%), and foreign debt issued in developed (5%) and emerging countries (18%). (The allocations add up to more than 100 because of certain short-duration securities that the fund holds, including futures, swaps and other derivatives.)
The investment process can sometimes lead to missteps – if the firm's investment committee makes the wrong call, say, on the direction of interest rates. But over time the strength of the fund's security selection, which is driven by thorough fundamental analysis, has kept the fund steady. It beats the Bloomberg U.S. Aggregate Bond index over time, and boasts better risk-adjusted returns, too. But the fund yields 1.2%, less than the current 1.5% yield of the index.
Vanguard Wellington
- Symbol: VWELX
- Expense ratio: 0.24%
- 1-year return: 19.9%
- 3-year annualized return: 15.2%
- 5-year annualized return: 12.3%
- 10-year annualized return: 11.7%
- Rank among the top 401(k) funds: #10
- Best for: Moderately conservative investors who seek an all-in-one portfolio that holds stocks and bonds
Vanguard Wellington has a long history and a standout long-term record. Founded in 1929, it is the nation's oldest balanced fund. Roughly two-thirds of the fund holds stocks; rest of the portfolio is devoted to bonds.
VWELX – another member of the Kiplinger 25 – has undergone a bit of a changing of the guard at the top. Daniel Pozen, a comanager since 2019, took over as sole manager of the stock side of the fund in July 2020; Loren Moran, a comanager on the bond side since 2017, is now the fund's sole bond picker after a comanager retired in June 2021.
On the stock side, Pozen favors high-quality large companies with a competitive edge over peers. Alphabet, Microsoft and Meta Platforms were top holdings at last report. He has trimmed the number of stocks in the portfolio from the high 80s to the high 60s since taking over. Stocks aren't required to pay a dividend to be considered for the portfolio, but roughly 85% of the stocks in the fund do.
On the bond side, Moran tilts heavily toward high-quality corporate debt, but spices up returns with investment-grade asset-backed securities and taxable municipal bonds. She holds roughly one-quarter of the fixed-income portfolio in Treasuries and agency bonds to maintain liquidity – easy access to cash – in VWELX. That's less than the typical 30% of assets that peer balanced funds hold on average.
Vanguard Wellington is a moderate-risk investment choice because it holds both stocks and bonds. But it still packs a punch.
Dodge & Cox Stock
- Symbol: DODGX
- Expense ratio: 0.52%
- 1-year return: 39.2%
- 3-year annualized return: 17.1%
- 5-year annualized return: 14.4%
- 10-year annualized return: 16.2%
- Rank among the top 401(k) funds: #8
- Best for: Patient investors with long-time horizons
Dodge & Cox Stock has been a member of the Kiplinger 25, our favorite actively managed no-load funds, since 2008. The fund's contrarian, buy-at-a-bargain-and-wait strategy takes some extra patience and perhaps is best suited to investors with long time horizons.
Longtime shareholders have not been disappointed. Over the past decade, Stock has returned 15.5% annualized. That trails the S&P 500, which has gained 17.0% annualized. But the gain in the index is thanks mostly to fast-growing stocks that DODGX, which favors value-priced stocks, doesn't typically own. But its performance against its peers is noteworthy; Dodge & Cox Stock beats 99% of its peers: large-company value funds.
Nine managers work collectively to pick stocks in companies that are temporarily undervalued by the stock market but have a favorable long-term growth outlook. Holdings in the portfolio, for example, sport an average 13.3 price-to-earnings ratio based on earnings estimates for the next 12 months. By contrast, constituents in the S&P 500 index have an average forward P/E ratio of 21.4.
Shares in financial and health care companies comprise 45% of the fund's assets. Among the fund's biggest holdings, for instance, are Wells Fargo (WFC), Capital One Financial (COF), Charles Schwab (SCHW) and Sanofi. Foreign stocks make up a little more than 10% of assets.
Dodge & Cox Stock is one of the best mutual funds for 401(k) investors seeking a market-beating actively managed fund. But the contrarian tilt of this fund is best suited to those with a medium to long time horizon.
Vanguard Primecap
- Symbol: VPMCX
- Expense ratio: 0.38%
- 1-year return: 31.1%
- 3-year annualized return: 20.0%
- 5-year annualized return: 18.4%
- 10-year annualized return: 18.0%
- Rank among the top 401(k) funds: #7
- Best for: A core holding for aggressive investors with long time horizons
Vanguard Primecap was closed to all investors long ago, but if it's offered in your 401(k) plan, you can still put away up to $25,000 a year. Consider yourself lucky. Vanguard Primecap is a superb fund run by five of the best stock-pickers in the country.
The managers – Theo Kolokotrones, Joel Fried, Alfred Mordecai, M. Mohsin Ansari and James Marchetti – work independently managing their own slice of the fund's assets. But they each aim to invest in growing companies that trade at bargain prices. In particular, they look for a catalyst – a new product, new executives at the helm or a restructuring – that they think will push a stock price higher over the next three to five years.
Once they buy a stock, they tend to hang on. The fund's 6% turnover ratio is a fraction of the 55% to 87% turnover of typical U.S. stock funds that invest in large companies.
"Because the Primecap team is buying stocks facing near-term uncertainty, it often takes time for their ideas to work out," says Dan Wiener, editor of The Independent Adviser for Vanguard Investors. "But in contrast to many other growth managers, the Primecap team is willing to wait, and on average holds onto a stock for a decade."
VPMCX's record isn't blemish-free, of course. Despite a 10-year annualized record that beats the S&P 500, Vanguard Primecap has lagged the index in five of the past 10 full calendar years, most recently in 2020.
But over the long haul, Vanguard Primecap shareholders have gotten a lot richer.
Fidelity Contrafund
- Symbol: FCNTX
- Expense ratio: 0.86%
- 1-year return: 32.1%
- 3-year annualized return: 28.2%
- 5-year annualized return: 22.8%
- 10-year annualized return: 18.5%
- Rank among the top 401(k) funds: #6
- Best for: Moderate investors looking for a tamer growth fund
Fidelity Contrafund is a proven standout.
Manager Will Danoff prefers to buy beaten-down or overlooked best-in-class companies with superior earnings growth, proven management teams and sustainable competitive advantages. These days, he's bullish on tech – well, he has been for years, but he is particularly keen on the space now as digital transformation stories continue apace. More than 30% of the fund is invested in technology, at last report, which is a touch above the 28% weighting in the S&P 500 stock index. He has owned Amazon.com, a top holding, since 2007, and Apple, another top FCNTX holding, since 2003.
Watchers of Fidelity funds consider Contrafund a conservative choice for growth. There's some merit to that. Over the past five years, for instance, the fund's 22.8% annualized return ranks better than just 53% of its peer group: funds that invest in growing, large companies. But FCNTX has been less volatile during that period than the typical large-company growth fund, too.
This is one of the best 401(k) mutual funds for investors who want growth but not all the volatility that comes with a more aggressive fund.
American Funds EuroPacific Growth
- Symbol: AEPGX
- Expense ratio: 0.82%
- 1-year return: 12.6%
- 3-year annualized return: 16.7%
- 5-year annualized return: 12.9%
- 10-year annualized return: 10.0%
- Rank among the top 401(k) funds: #3
- Best for: International stock exposure
American Funds EuroPacific Growth is the biggest actively managed foreign stock fund in the country. But the Capital System of dividing a fund's assets among multiple managers has helped the fund stay competitive. Over the past five and 10 years, for instance, the fund has largely kept pace with its typical peer: funds that invest in large, foreign companies. And it beats the MSCI EAFE index of stocks in foreign developed countries.
Certainly, there are zippier foreign-stock funds available out there. But in a 401(k) plan, the investment choices, especially with foreign-stock funds, are typically limited to an actively managed fund and an index fund. So, the question for 401(k) investors is whether an investment in AEGPX is better or worse than an investment in an international-stock index fund.
On that, the verdict is clear: EuroPacific Growth beats Vanguard Total International Stock Index (VGTSX) over the past two, three, five and 10 years. What's more, during the recent bear market in early 2020, EuroPacific Growth fund held up better, with a 31.4% loss, compared with a 33.3% loss in Vanguard Total International Stock index fund.
AEPGX is among the best 401(k) mutual fund options around, and we don't expect that to change even though a longtime manager is stepping down at the end of 2021. Even after his departure, AEPGX will still have 10 managers.
