Best Mutual Funds for Retirement

LAST REVIEWED May 02 2020 8 MIN READ

By The Human Interest Team

Your investing strategy in your tax-advantaged retirement account will play a large role in how much money your account has once you reach retirement age. Choosing mutual funds over other riskier or more expensive options can help you see greater returns on your investments. Choosing the right mutual funds — especially low-fee options with the appropriate degree of risk — is especially important. This guide will list some of the best retirement funds.

Are Mutual Funds a Good Choice for Retirement Investing?

Retirement accounts are structured so investors can choose from multiple different types of investments. Some offer principal guarantees or determined growth rates that help protect your investments. It’s important to choose the right investments that best protect your retirement income. The four most common types of investments include annuities, Exchange-Traded Funds (ETFs), stocks and bonds, and mutual funds. Many retirement account investors prefer mutual funds. Here’s why:

Benefits of Mutual Funds Over Annuities

Annuities are tax-advantaged options that protect investors’ direct investments, or principal, and promise a fixed rate of return. Annuities offer investors security in the form of guaranteed income. However, they only guarantee that fixed rate for a certain period. A combination of high fees and very low growth (barely past the rate of inflation) limits your investment’s potential growth. 

Mutual funds, on the other hand, offer the potential of a much higher growth rate. Low-cost index funds also allow you to invest without incurring high trading or management fees. These factors, combined with the tax-deferred growth that most tax-advantaged retirement accounts offer, make mutual funds a much more promising investment over the long term.

Benefits of Mutual Funds Over ETFs

Exchange-traded funds are similar to mutual funds, with one major difference: Investors can trade ETFs throughout the trading day, while they can only trade mutual funds after the markets close. ETF investors can day-trade or trade more quickly in response to market fluctuations. They might respond too readily to plunges in the stock market or even try to time the market. Both practices can result in frequent losses and lots of trading fees. 

With mutual funds, investors can enjoy access to the stock market but are protected from the impulse to day-trade or sell during small shocks. Historically, the S&P has averaged a 12% growth rate. While past performance is no guarantee of future performance, it’s an indication that letting your investments grow on their own is a strong path to a comfortable retirement.

Benefits of Mutual Funds Over Stocks and Bonds

Mutual funds are a collection of stocks and funds that are bundled together to protect investors from abrupt changes in individual stock values. When investors invest directly in stocks, they take on a lot of potential risk. Bonds are also risky. The value of bonds rises when interest rates decrease, and the value lowers as the interest rates increase. Purchasing bonds during periods with extremely low-interest rates increases the risk that the bonds’ value will soon plunge. Mutual funds, in comparison, spread out the risk and protect investors from turbulence in the global and domestic markets.

How to Find the Best Mutual Funds for Retirement 

Investors might find themselves choosing between growth funds and income funds. Growth funds have higher risk, but they promise greater potential returns. Income funds are more reliable and can establish a less turbulent “income” for retirees, but they are less likely to grow quickly. Retirement investors often consider investing in growth funds when they are younger and have a longer timeline to correct losses and take on potential risks. Older investors might consider investing in income funds. 

Mutual fund service providers can create mutual funds with different proportions of growth and income funds. Someone with a long timeline may choose a riskier mutual fund of 80% stocks and 20% bonds, then shift their allocation toward more bonds over time. Along with choosing the right allocations, it’s important that investors look for funds with low management fees and expense ratios. These funds charge fewer fees over time, which allows the total amount to grow larger. Actively managed accounts may have funds nearing or exceeding 1%, while passively managed accounts may have expense ratios closer to 0.15%.

When you’re planning for retirement, other financial considerations include:

  • Timing your withdrawals to avoid penalties.

  • Planning for tax payments.

Best Mutual Funds for Retirement 

Choosing the right mutual funds is just one step when preparing for retirement, but it’s an important one. Many experts recommend these mutual funds because they offer core benefits such as flexibility and low-cost investing:

  • PIMCO Income Fund (PIMIX)

  • Vanguard Lifestrategy Conservative Growth Fund (VSCGX)

  • Northern Global Tactical Asset Allocation Fund (BBALX)

  • Vanguard Target Retirement Income (VTINX)

  • Fidelity Freedom Funds

  • Vanguard Total Stock Market Index Fund (VTSMX)

  • Vanguard Long Term Bond Index Fund (VBLTX)

  • Vanguard Prime Money Market Fund (VMMXX)

  • Jackson Square SMID-Cap Growth IS (DCGTX)

  • MassMutual Select Mid Cap Growth Service Class (MEFYX)

  • Dreyfus Appreciation Fund (DGAGX)

  • Fidelity Balanced (FBALX)

  • American Funds American Balanced (ABALX)

  • American Funds New Perspective (ANWPX)

  • American Funds Washington Mutual Investors (AWSHX)

  • Dodge & Cox Balanced (DODBX)

  • Dodge & Cox (DODIX)

  • Dodge & Cox International Stock (DODFX)

  • Dodge & Cox Stock (DODGX)

  • Fidelity Blue Chip Growth (FBGRX)

  • Fidelity Contrafund (FCNTX)

  • Fidelity Growth Company (FDGRX)

  • Fidelity Low-Priced Stock (FLPSX)

  • Harbor Capital Appreciation (HCAIX)

  • Invesco Diversified Dividend (LCEIX)

  • Invesco Oppenheimer Developing Markets (ODMAX)

  • Janus Henderson Enterprise (JAENX)

  • JPMorgan Large Cap Growth (OLGAX)

  • Metropolitan West Total Return Bond (MWTRX)

  • Neuberger Berman Genesis (NBGNX)

  • PGIM Total Return Bond (PDBAX)

  • T. Rowe Price Blue Chip Growth (TRBCX)

  • T. Rowe Price Growth Stock (PRGFX)

  • T. Rowe Price Institutional Large Cap Growth (TRLGX)

  • T. Rowe Mid-Cap Growth (RPMGX)

  • Vanguard Equity Income (VEIPX)

  • Vanguard Inflation-Protected Securities (VIPSX)

  • Vanguard International Growth (VWIGX)

  • Vanguard Primecap (VPMCX)

  • Vanguard Wellesley Income (VWINX)

  • Vanguard Wellington (VWELX)

Any of these funds present investors with strong advantages. Investors can find low-fee options with varying risk allocations that best fit their age, expected retirement, and comfort level with potential risk. If you handle tax-advantaged retirement accounts for your company’s employees and want to ensure they have access to a diverse list of investment options, talk to one of our representatives at Human Interest.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

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