Best 401(k) Investments: Where to Invest

Investing wisely in your 401(k) could make the difference between a retirement spent drinking latte macchiatos at the local Starbucks and one spent sipping an espresso outside a Paris bistro every two years or so.

To help you make good choices, we analyzed the 10 most widely held, actively managed funds in employer-based retirement savings plans, according to the latest data from BrightScope, a unit of ISS Market Intelligence. We've rated each 401(k) fund "buy," "sell" or "hold" below, ranked in order of retirement plan assets. Four earn a "hold"; the remaining six fetch "buy" ratings.

We excluded index funds from our detailed reviews below because index funds are built to track a benchmark, and in large part they do that. We also excluded target-date funds because we're generally fans of each of the target-date series that rank among the top 75 funds.

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We cite returns and data through October 31, unless otherwise noted, for the share class of each fund that is most available to retail investors.

Where to invest your 401(k)

American Funds EuroPacific Growth: HOLD

We want to love American Funds EuroPacific Growth (AEPGX), which is one of just six foreign stock funds among the 75 popular 401(k) funds, and the biggest of them by far. It invests in developing and emerging countries. Many of its 13 managers have decades of experience. Plus, the fund charges a below-average expense ratio.

But its performance is just so-so. EuroPacific Growth beat its benchmark, the MSCI All Country World ex USA index, over the past 10- and 15-year periods, for instance, but it lagged its peers (foreign large-company growth funds) over the past one, three, five, 10 and 15 years. In sum, it's neither a terrible choice nor a winner. A "hold" rating here means "don't sell." Foreign markets are heating up – a good reason to stay put.

Dodge & Cox Stock: BUY

If there's trouble in any corner of the stock market, you can bet the seven managers of Dodge & Cox Stock (DODGX) – a member of the Kiplinger 25, the list of our favorite actively managed, no-load mutual funds – are looking to find gems among the junk.

They're value hunters to the core and favor companies with stocks that trade at a discount to their future growth potential. Recently they beefed up the fund's stake in beaten-down shares of CVS Health (CVS), which have sunk 14% since the start of 2024. The managers are disciplined about selling when stocks get pricey, too. In the first half of 2024, they sold Hewlett Packard Enterprise (HPE). The longtime holding had nearly doubled since hitting a low in 2020.

Over the past decade, the value-oriented fund has suffered in comparison with growth fund strategies and the S&P 500 Index. But Dodge & Cox Stock held up far better than the S&P 500 in 2022; its 7% loss was nowhere near the 18% decline in the broad market index. And it's a standout in its class. The fund beat 93% or more of its peers (large-cap value funds) over the past five-, 10- and 15-year periods.

Vanguard Primecap: BUY

Vanguard Primecap (VPMCX) – a storied large-company stock fund – is a good addition to any portfolio, but it's best for investors with a stomach for volatility and a long investment time horizon.

Over the past 15 years, Primecap's 14.5% annualized return beat the S&P 500 and 97% of the fund's peers (large blend funds). Between 2019 and 2021 – a go-go period for the broad market – the fund lagged its peers for three straight years, albeit with double-digit returns.

Five managers divide the assets and invest separately, focusing on growing companies priced at a discount that have a catalyst – a new product, say, or a restructuring – to push stock prices higher. Several of the fund's top holdings, including Eli Lilly (LLY), Micron Technology (MU) and Microsoft (MSFT), have logged frothy double-digit gains over the past year. We're big fans of the fund, but its recent record is a good reminder that it's best for aggressive investors.

Vanguard Wellington: BUY

Vanguard Wellington (VWELX), a Kiplinger 25 fund, is an all-in-one portfolio that holds 65% of its assets in stocks and 35% in bonds.

Dan Pozen picks the stocks, investing in durable businesses with strong future earnings potential that trade at moderate valuations. Microsoft, Apple (AAPL) and Nvidia (NVDA) are top holdings. On the bond side, Loren Moran holds mostly high-quality corporate debt and Treasuries.

Over the past 12 months, the duo have delivered a 24% total return, which outpaces 68% of its peers, moderate allocation funds. The fund yields 2.1%.

TCW MetWest Total Return Bond: HOLD

Metropolitan West Total Return Bond is now called TCW MetWest Total Return Bond (MWTRX), after parent firm TCW rebranded its MetWest funds. And that's not the only change at the fund. Two TCW bond pickers came aboard in late 2023, and the fund's most senior manager, Stephen Kane, was set to retire at the end of 2024 (though Bryan Whalen, a manager since 2004, remains).

The changes give us reason to hit pause on the fund, as does its spotty performance. Total Return Bond has lagged its peers and the Bloomberg U.S. Aggregate Bond Index in five of the past 10 full calendar years. The fund's yield, 3.9% at of the end of October 2024, falls short of peers, too. A "hold" here means "don't buy." You'll do just as well, perhaps better at times, in a bond index fund.

Fidelity Contrafund: BUY

Will Danoff has steered Fidelity Contrafund (FCNTX) as sole manager for 34 years. That says something about Danoff's stock-picking ability. First, he's experienced, having survived a few market cycles. Second, he's good: Over the past one-, three-, five, 10-, 15- and 20-year periods, Danoff has served aces over the S&P 500.

Over the years, he has learned to hold on to winners. Contrafund's top two holdings, Meta Platforms (META) and Berkshire Hathaway (BRK.A), make up nearly 24% of assets. He first bought Meta in 2012; Berkshire Hathaway, in 2002. What's more, this large growth fund has been less volatile than peers over the past decade. All told, Contrafund is a superb choice for investors looking for growth.

Vanguard Equity Income: BUY

Vanguard Equity Income (VEIPX) boasts a 2.4% yield, which tops the 1.3% dividend yield of the S&P 500. Dividend stocks in general have struggled in recent years, but they are beginning to show signs of life. The fund's three-year annualized return of 8.6%, for instance, lags the broad benchmark by less than half a percentage point.

Matt Hand, of Wellington Management, runs two-thirds of the assets, investing in companies with above-average yield, high-quality traits and reasonable valuations. A team from Vanguard's quantitative equity group led by Sharon Hill manages the rest, using a computer model that emphasizes free cash flow (money left over after operating expenses and spending to maintain and expand the business) to choose stocks. Recent top performers in the fund include Broadcom (AVGO), JPMorgan Chase (JPM) and Bank of America (BAC).

Pimco Total Return: HOLD

Pimco Total Return (PTTAX), a storied mutual fund that was once the largest bond fund in the world, has seen better days. Those rosier times occurred more than a decade ago, well before former manager (and Pimco co-founder) Bill Gross left the firm in 2014.

Recent returns have been average or worse. The fund has lagged its peers (intermediate core-plus bond funds) in six of the past 10 calendar years. And though its aim, among other things, includes seeking attractive risk-adjusted returns, the fund's risk-adjusted returns have ranked below average over the past three, five and 10 years.

A bond index fund would offer similar (though slightly lower) returns and less volatility. Pimco Total Return yields 4.2%.

American Funds Growth Fund of America: HOLD

The 13 managers at American Funds Growth Fund of America (AGTHX), which is celebrating 50 years, seek to find innovative companies across all sectors. Translation: The fund doesn't hold as big a stake in tech stocks as its peers (large-company growth funds).

We like that Growth Fund of America is not a carbon copy of other large-company growth funds. Though its top holdings include the usual suspects – Meta Platforms, Microsoft, Amazon.com, Nvidia and Broadcom – the stakes in them aren't as outsize as you see in peer funds.

The end result, however, is that the fund sports average returns relative to its peers over the past decade, with average risk. But here's the thing: This fund beats the S&P 500 over the long haul – five, 10 and 20 years – as well as over the past 12 months. That's impressive.

Last year, we suggested complementing this fund with a U.S. stock index fund, which can help lower the overall volatility of a large-company stock portfolio. We stand firm on that advice.

T. Rowe Price Blue Chip Growth: BUY

T. Rowe Price Blue Chip Growth (TRBCX), which focuses on established companies with seasoned managers and above-average growth and profitability, gets an upgrade to a "buy" rating from a "hold" last year. Manager Paul Greene now has a three-year record, and he's making his mark.

Look past his first full calendar year, 2022, though. It was a terrible time for growth stocks, and Blue Chip Growth lost 39%, lagging the broad market and peers (large-company growth funds).

Since then, by contrast, Greene has delivered a 43% annualized return through October 2024, which topped the S&P 500 and peer funds. Holding proportionately more in tech stocks, especially Nvidia and Microsoft, helped.

As those stocks have soared in recent years, Greene has been trimming his stakes and initiating new positions in other sectors, including consumer staples, energy and utilities. One such purchase, in Constellation Energy (CEG), climbed 134% over the past 12 months.

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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