6 Best Mutual Funds to Invest In (2020)

Diversification is a vital component of any investment portfolio, yet, only 34% of Americans take steps to diversify their portfolio.

In fact, one-fourth of Americans don’t have any idea whether their investments are diversified or not.

As an investor, a diversified portfolio protects your investments against excessive risk. You are not dependent on any specific asset class, which limits your overall risk even when a particular asset underperforms.

Retail investors may not have the time or expertise to manage their portfolio or diversify it, but that doesn’t mean that their investments have to bear the brunt for it.

Investing in mutual funds allows investors to leverage the financial expertise of leading money managers by paying a small percentage fee.

We have created a list of some of the best mutual funds in the market, but before we discuss these funds, here is a list of the best high yield savings accounts that you can use to park extra cash.

Let’s get started with our list.

What are the best mutual funds?

1. Vanguard 500 Index Fund.

Vanguard 500 Index Fund

Vanguard 500 Index Fund tracks the 500 largest U.S. corporations, with equities as its primary investments. The fund invests in large-cap stocks, making it an ideal choice for investors with lower risk appetite.

Vanguard 500 Index Fund invests in the U.S. markets only. You can start investing in the fund with a minimum investment of $3,000.

Fund size

Vanguard 500 Index Fund has net assets worth $519.2 billion, containing 510 stocks. It’s top 10 largest holdings account for 26.6% of its overall assets. Its three largest holdings at the end of May 2020 were Microsoft Corp., Alphabet Inc., and Amazon.com Inc.

Minimum investment & fees

The minimum investment in the Vanguard 500 Index Fund is $3,000. You can invest additional funds in the increments of $1. The expense ratio of the Vanguard 500 Index Fund is 0.04%.

You can also invest by purchasing the ETF of the Vanguard 500 Index Fund.

Fund performance

  • 1-year: 7.47%
  • 3-year: 10.69%
  • 5-year: 10.69%
  • 10-year: 13.95%

These are the average annual returns of the Vanguard 500 Index Fund as of June 30, 2020.

You can find out more about the Vanguard 500 Index Fund here.

2. Vanguard Balanced Index Fund.

Vanguard Balanced Index Fund

Vanguard Balanced Index Fund offers diversification to its investors by investing in both equity and bond investments. As per the fund advisor, this mutual fund invests 60% of its assets in equity and 40% in bonds.

Vanguard Balanced Index Fund tracks the CRSP US Total Market Index for equity investments and the Bloomberg Barclays U.S. Aggregate Float Adjusted Index for bond investments.

You can start investing in the Vanguard Balanced Index Fund with a minimum amount of $3,000.

Fund size

Vanguard Balanced Index Fund has assets worth over $43.5 billion under management, with over 3,180 stocks and 7958 bonds, as per its recent filing (May 31, 2020). The fund has an average effective maturity period of 8.3 years.

The top 10 holdings of the Vanguard Balanced Index Fund account for 13.7% of its net assets. Its three largest holdings include Microsoft Corp., Apple Inc., and Amazon.com Inc.

Minimum investment & fees

You can start investing in the Vanguard Balanced Index Fund with a minimum investment of $3,000. Its expense ratio is 0.07%.

Fund performance

  • 1-year: 8.24%
  • 3-year: 8.58%
  • 5-year: 8.04%
  • 10-year: 9.94%

Learn more about the Vanguard Balanced Index Fund here.

3. Fidelity Select Consumer Staples Portfolio.

Fidelity Select Consumer Staples Portfolio

Fidelity Select Consumer Staples Portfolio mutual fund is ideal for consumers with a conservative risk profile. This mutual fund invests in consumer staples, products that consumers will purchase irrespective of the economic conditions.

Fidelity Select Consumer Staples Portfolio mutual fund has a moderate risk profile. There are no minimum investment requirements, which means you can invest as much money as you can. Also, an expense ratio of 0.75% is fairly reasonable when compared with other similar funds.

Fund size

According to the latest data, Fidelity Select Consumer Staples Portfolio mutual fund has assets worth $1.34 billion under management. The largest 10 holdings of the fund account for 64.10% of its net portfolio value.

The top three holdings of the Fidelity Select Consumer Staples Portfolio mutual fund are Procter & Gamble Co., Coca Cola Co., and Pepsico Inc. The fund has 90% of its portfolio invested in domestic equities, as per the latest data.

Minimum investment & fees

You can start investing in the Fidelity Select Consumer Staples Portfolio mutual fund with $0, which means no minimum investments. The expense ratio of the consumer staples fund stands at 0.75%.

Fund performance

  • 1-year: 1.12%
  • 3-year: 1.00%
  • 5-year: 4.04%
  • 10-year: 9.97%

Check the official page of Fidelity Select Consumer Staples Portfolio for more information.

4. Hussman Strategic Total Return Fund.

Hussman Strategic Total Return Fund

Hussman Strategic Total Return Fund is run by John P. Hussman, the guy who was able to predict the 2008 market crash. It is an ideal fund for investors seeking low-risk or guaranteed income investments.

Hussman Strategic Total Return Fund invests primarily in fixed income securities, including treasury bonds, bills, notes, treasury strips, and inflation-protected securities. If you are planning to preserve your wealth, this is a good option.

Fund size

Hussman Strategic Total Return Fund has assets worth over $289.5 million under management as per the recent reports. The fund has invested roughly 71% of its assets in bonds and nearly 22% in equities.

Minimum investment & fees

You can start investing in the Hussman Strategic Total Return Fund with a minimum investment of $1,000. IRA contributions and gifts to minor accounts must make a minimum investment of $500.

Fund performance (06/30/20)

  • 1-year: 14.00%
  • 3-year: 7.68%
  • 5-year: 5.86%
  • 10-year: 3.26%

Find out more about the Hussman Strategic Total Return Fund by visiting its official website.

5. Vanguard Health Care Fund

Vanguard Health Care Fund

Vanguard Health Care Fund focuses on companies involved in the healthcare industry. Some investors may consider investing in a single sector as a risk. This fund is suitable for investors having a diversified portfolio.

Vanguard Health Care Fund invests in both domestic as well as foreign health care companies. The fund operates with an expense ratio of 0.32%, which is much lower than the average expense ratio of 1.24% for similar funds.

Fund size

Vanguard Health Care Fund holds assets worth $48.4 billion under management, with 88 stocks in its portfolio (05/31/2020). The 10 largest holdings of the fund account for 40.30% of its net assets.

UnitedHealth Group Inc., AstraZeneca plc, and Pfizer Inc. are the top three holdings of the Vanguard Health Care Fund.

Minimum investment & fees

You can invest in the Vanguard Health Care Fund with a minimum investment of $3,000. The fund has a comparatively lower expense ratio of 0.32%. It is possible to purchase Admiral Shares mutual fund with a similar composition.

Fund performance (06/30/2020)

  • 1-year: 18.96%
  • 3-years: 9.29%
  • 5-years: 6.74%
  • 10-years: 15.49%

If you are planning to invest in the Vanguard Health Care Fund, visit here.

6. Vanguard Total Bond Market Index Fund.

Vanguard Total Bond Market Index Fund

For someone seeking safe, fixed-income investments, Vanguard Total Bond Market Index Fund is a good option. This mutual fund invests in investment-grade bonds, including treasury bonds and mortgage-backed securities.

Over 60% portfolio of the Vanguard Total Bond Market Index Fund is invested in U.S. government bonds. It has an exceptionally low expense ratio of 0.05% and an average effective maturity duration of 8.3 years.

Vanguard Total Bond Market Index Fund has a low-risk profile, which makes it an excellent option for conservative investors.

Fund size

Vanguard Total Bond Market Index Fund holds assets of up to $269.0 billion, containing more than 9,568 bonds. Its three largest holdings include U.S. government bonds (60.8%), Baa (19.3%), and A bonds (12.6%).

Minimum investment & fees

You’ll need at least $3,000 to start investing in the Vanguard Total Bond Market Index Fund. This mutual fund is also available as an ETF. Vanguard Total Bond Market Index Fund has an expense ratio of 0.05%, lower than the average expense ratio of 0.67% for similar funds.

Fund performance (06/30/2020)

  • 1-year: 8.96%
  • 3-years: 5.34%
  • 5-years: 4.31%
  • 10-years: 3.78%

For those ready to find out more about the Vanguard Total Bond Market Index Fund, kindly check here.

How to choose the best mutual funds for your portfolio?

Now that we have discussed some of the best mutual funds available in the market, let’s find out how you can choose the right mutual funds for your portfolio.

Choose funds that suit your investment goals.

A critical part of creating an investment strategy is always to prioritize your goals and choose investments accordingly. Finding the ideal mutual fund should be no different.

Start by listing your investment goals. It is best to divide your goals into short-term term, mid-term, and long-term categories.

  • Short-term goal: Fixed-income mutual funds or funds that invest in bonds are suitable for short-term goals.
  • Mid-term goals: You can choose a mixture of stock and equity investments, also called hybrid funds. The critical point here is to maintain a balance in accordance with your financial goal.
  • Long-term goals: Go with equity-heavy mutual funds for long-term goals, such as retirement.

Define your risk tolerance.

Risk tolerance defines the degree of risk that an individual investor can handle in his portfolio. Always choose investments that align with your risk tolerance.

For instance, investors with low-risk tolerance should choose conservative investments (bonds, fixed-income products). In contrast, investors with higher risk tolerance can choose aggressive investing strategies.

How can you find your risk tolerance?

Ideally, you should work with a financial advisor to understand your risk tolerance better. Most financial advisors and robo-advisors will have you fill a series of questions about your investing preferences and behavior to derive your risk profile.

Seek reputed funds with reliable, experienced management teams.

Once your goals are set, the next step is to choose a mutual fund with a history of decent returns and experience. A couple of things that you would want to analyze are the average returns (3 years, 5 years, 10 years), expense ratio, turnover ratio, and any compliance issues.

Additionally, look out for third-party ratings, such as Morningstar, of individual mutual funds. Most mutual funds rate their risk level and display their stock or bond holdings in their official reports or prospectus. Choose a mutual fund that aligns with your investing approach.

Take note of volatile market conditions.

Investing in a bull market is easy. Everyone would appear like a champion, but it’s the bear market that tests real investors.

As a retail investor, it makes sense to move towards safer investments during volatile market conditions. You would want to stick with secure sectoral funds and mutual funds focussing on capital preservation and fixed-income products.

Pay attention to expense ratio and minimum investments.

The expense ratio of a fund is the fees investors pay for professional management. High expense fees can take a significant part of your portfolio, so make sure to factor it in when calculating your effective rate of return.

Also, find out more about any lock-in periods or minimum investments required in an investment fund.

Bottom line (Our recommendations)

Mutual funds offer professional money management at a fraction of a cost hedge funds or high-end money managers charge.

As a retail investor, it is critical to define your investment goals and invest in equities for the long-term only. Always remember that no one has ever been able to predict all the market movements or book consistent profits.

The trick is to hold your investments slightly longer to ride off temporary stock market routs.

For investors seeking guaranteed returns, here is a list of the best high yield savings accounts in the market.

Focus on diversification and invest in one or more mutual funds to achieve your financial goals.

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