The best mutual funds for your retirement.
Investing for retirement is the biggest goal for most retail investors. But with stock market volatility, you may be worried that your assets won’t sufficiently fund your retirement lifestyle. Taking an active role in selecting the best retirement funds will help you build and protect your nest egg. Picking the best 401(k) mutual funds — balancing risk and expected returns while minimizing fees — can help make your money grow for retirement and last well into the future. And whether you’re building wealth for tomorrow or investing as a retiree, these mutual funds can offer both capital appreciation and income. Here’s a list of some of the best mutual funds for retirement.
Vanguard Target Retirement 2035 Fund (ticker: VTTHX)
Vanguard’s suite of Target Retirement funds each carry a retirement date. So the 2035 fund is designed for investors expecting to retire in about 14 years, and there is a suite of comparable offerings with varying expected retirement dates. These built-in retirement dates can be helpful. Investing in a fund designed with your retirement date in mind may help mitigate your emotional response to short-term market swings in the stock and bond markets. VTTHX owns shares of the Vanguard Total Stock, Total International stock, Total Bond and Total International Bond market index funds. This life cycle retirement fund has a 1.48% yield and a low 0.14% net expense ratio. The fund automatically adjusts holdings as you age, decreasing your exposure to stocks, while increasing exposure to bonds as you approach retirement.
Vanguard Target Retirement Income Fund (VTINX)
Retirees and near-retirees should consider another low-fee Vanguard retirement income fund for cash flow. VTINX invests in five Vanguard index funds to reach about a 30% stock and 70% bond asset allocation. The fund includes domestic and international stock funds and three bond funds: total, international and inflation-protected. The returns for this fund mirror those of the underlying indexes, with five- and 10-year average returns of 6.7% and 6%, respectively, as of Aug. 31. The fund handily beat the 10-year average retirement income fund category’s return of 5.12%. VTINX has an expense ratio of 0.12%. According to Vanguard, that is 75% lower than the average expense ratio of funds with similar holdings. A $10,000 investment in the fund 10 years ago would be worth roughly $17,900 at the end of August.
Vanguard Wellesley Income Fund Investor Shares (VWINX)
This balanced fund is just right for income investors, offering exposure to stocks and investment-grade bonds. While balanced funds tend to have more allocation toward stocks, this fund allocates about 38.6% to stocks and 60% to bonds. The rest is in short-term reserves. The fund owns a mix of more than 1,200 bonds and over 60 stocks. VWINX’s portfolio focuses on stocks that have historically paid out larger-than-average dividends or for which there are expectations of increasing dividends. Some of the top 10 holdings include JP Morgan Chase & Co. (JPM), Johnson & Johnson (JNJ), and Cisco Systems Inc. (CSCO). The current yield is 2.38%, and the expense ratio is 0.23%. The fund’s five- and 10-year annual returns of 7.6% and 8%, respectively, have beaten their category averages.
Northern Trust Global Tactical Asset Allocation Fund (BBALX)
This “fund of funds” by Northern Trust is suitable for investors interested in diversifying their retirement portfolio with an international mix of stocks, bonds and commodities. The fund’s strategy is to invest in funds that invest in companies located outside the U.S. as represented in the MSCI EAFE and MSCI Emerging Markets indexes, along with other diversified foreign indexes. BBALX goes beyond the typical 60% stock, 40% bond allocation with additional asset classes like high-yield and investment-grade bonds, infrastructure, global real estate, and natural resources. The fund’s greater diversification offers more protection against underperformance of a particular asset class. As a fund of funds, BBALX invests in other types of funds rather than stocks and bonds directly. The five- and 10-year average annual returns are 7.7% and 6.7%, respectively, outperforming the Morningstar category averages but trailing the fund’s internal reference benchmark. The fund’s current yield is 1.77%, and the net expense ratio is 0.56%.
Baird Aggregate Bond Fund (BAGIX)
Despite the low-interest-rate environment, retirees and those approaching retirement need to own bonds for income and to offset the volatility of the equity markets. An actively managed fund, BAGIX attempts to achieve an annual rate of return greater than that of the Bloomberg Barclays U.S. Aggregate Bond Index. The fund is focused on risk control and investment discipline. BAGIX’s credit quality ranges from its holdings of top-tier U.S. Treasurys to its roughly 23% allocation of BBB-rated bonds. The fund’s sector profile spans government, industrials and financial bonds. BAGIX sports a 2.03% yield for investor shares and will adjust along with changes in interest rates. The management expense ratio is 0.3%.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
The low-fee index fund champion doesn’t disappoint with its 0.07% net expense ratio and yield of 1.43%. VBIAX adheres to a typical 60% stock, 40% bond allocation and aligns with major stock and bond market indexes. The bond portion is akin to an intermediate-term bond fund. The fund is diversified across all equity sectors, with its top allocations in consumer discretionary, health care and industrials. The number of holdings tops 12,000, including more than 3,600 stocks, with exposure tilted toward large-cap equities like Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOG, GOOGL). The fund is well-diversified across investment sectors, bond issuers and credit qualities.
Pimco Income Fund (PIMIX)
The final best retirement fund on this list falls into the fixed-income category. PIMIX offers income with less risk than an all-stock portfolio. The fund’s goal is to maximize current income, with capital growth as a secondary objective. The fund actively manages bonds with varying maturities and credit quality. Additionally, PIMIX employs derivative investment strategies to boost income. The fund owns fixed-income securities from across the globe and captures the advantages of advancing bond sectors. PIMIX tactically adjusts holdings to maximize yield. As of Sept. 7, the yield was 4.1%. The fund has a 0.5% expense ratio. PIMIX enjoys a five-year average annualized return of 5.5% and an average 7.1% return over the past decade.
The best funds for retirement:
— Vanguard Target Retirement 2035 Fund (VTTHX)
— Vanguard Target Retirement Income Fund (VTINX)
— Vanguard Wellesley Income Fund Investor Shares (VWINX)
— Northern Global Tactical Asset Allocation Fund (BBALX)
— Baird Aggregate Bond Fund (BAGIX)
— Vanguard Balanced Index Fund Admiral Shares (VBIAX)
— Pimco Income Fund (PIMIX)
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Update 09/08/21: This story was published at an earlier date and has been updated with new information.