Save, save, save! That’s the advice everyone has for funding your 401(k) plan. Less is written about how you should invest those dollars you stash from every paycheck in your retirement account. Figuring out which fund to buy can be daunting.
But there are ways to take the guesswork out of how you invest your 401(k) savings. For starters, many workplace retirement plans offer index funds, which track major market benchmarks. With these passively managed products, the tough part is deciding which index or indexes you want to mimic, whether they track U.S. stocks, foreign stocks, bonds or slices of those various markets.
Of course, seeking to merely keep pace with a particular market is a reasonable objective. But some of us want to try to beat the benchmarks. For that, you need solid actively managed funds.
We examined the 105 most popular mutual funds in workplace retirement plans, a list prepared by BrightScope, which analyzes and ranks employer-sponsored retirement-savings plans. We carved out the 20 index funds from the list, which left 85 actively managed funds. We analyzed them all, pitting them against appropriate benchmarks and peers for risk, returns and consistency. Here are our 26 favorites, listed alphabetically. In addition, we also reviewed the target-date funds offered by two fund families that ranked highest in or analysis of the most popular funds in workplace retirement plans.
To help you compare the funds’ returns to appropriate benchmarks, here are the 1-year, 3-year, 5-year and 10 year returns for key indexes:
|S&P 500 (Large-company U.S. Stocks)||9.0%||9.0%||14.9%||6.8%|
|Russell 2000 (Small-company U.S. Stocks)||15.3%||7.0%||14.3%||6.7%|
|MSCI EAFE (Developed foreign market stocks)||-2.6%||-1.5%||6.4%||1.4%|
|Bloomberg Barclays US Aggregate (Investment-grade U.S. bonds)||2.8%||2.9%||2.4%||4.4%|
Symbols, expense ratios and returns as of November 17 refer to the share class of each fund with the lowest minimum-investment requirement, which may differ from the share class offered in your workplace retirement plan. For instance, information for American Funds is for the F1 share class, which online brokers Fidelity and Schwab offer without transaction fees or sales charges. But the American Funds share class offered in your 401(k) is likely to be one created for such plans.