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When you’re looking for the best mutual funds, that’s a great place to start. But don’t forget you’re shopping for tomorrow too.
You don’t always win long-term when you’re short-term.
It’s possible your portfolio’s best mutual funds aren’t the same as your parents, siblings, or neighbors’. Know what are the best mutual funds and how mutual funds work.
Best-performing U.S. equity mutual funds
We looked at major U.S. equity funds with low costs (no sales commissions or expense ratios above 1%) and low minimums (less than $2,500) using Morningstar, a NerdWallet advertising partner.
This section explains how to choose a mutual fund.
| Fund | Symbol | 3-year return | Expense ratio |
|---|---|---|---|
| Fidelity Advisor Series Growth Opportunities Fund | TAX | 35.02% | 0.01% |
| Fidelity Advisor Growth Opps Z | FAX | 34.67% | 0.69% |
| Fidelity Advisor Growth Opps I | FAGCX | 34.51% | 0.81% |
| Fidelity Series Growth Company | FCGSX | 31.19% | 0.00% |
| Fidelity Series Blue Chip Growth | FSBDX | 30.45% | 0.00% |
| American Century Focused Dynamic Gr Inv | ACFOX | 30.08% | 0.85% |
| Fidelity Growth Company K | FGCKX | 29.95% | 0.75% |
| Fidelity Growth Company | FDGRX | 29.84% | 0.83% |
| Touchstone Sands Capital Select Growth Y | CFSIX | 29.71% | 0.94% |
| Fidelity Blue Chip Growth K | FBGKX | 29.24% | 0.71% |
| Fidelity Blue Chip Growth | FBGRX | 29.13% | 0.79% |
| T. Rowe Price New Horizons | PRNHX | 28.71% | 0.75% |
| Columbia Small Cap Growth Inst2 | CSCRX | 28.50% | 0.94% |
| Lord Abbett Growth Leaders R6 | LGLVX | 27.93% | 0.59% |
| Lord Abbett Growth Leaders F | LGLFX | 27.85% | 0.65% |
Data current as of October 6, 2021.
How to choose the best mutual funds for you?
NerdWallet recommends mainly investing in mutual funds, especially index funds, which track markets passively like the S&P 500.
Because of that, these funds are actively managed, which means they try to beat the market.
You should consider these things when investing in funds:
- Passive funds are cheaper and usually perform better than active funds.
- Look at fees carefully. If you use a broker that offers no-transaction-fee mutual funds, you can save a lot of money.
- Build your portfolio and rebalance once a year.
Average mutual fund return
Since mutual funds of different types should bring different returns, managing your portfolio also means managing your expectations.
Stock mutual funds = higher potential returns (or losses)
Mutual funds that invest in stocks, also known as equity mutual funds, provide the highest potential profits, but also carry the highest risks – and they come in different categories with varying levels of risk.
Stock index funds tend to be less volatile than large-cap high-growth funds, which aim to match index returns like the S&P 500.
Yahoo’s S&P 500.
Bond mutual funds = lower returns (but lower risk)
Investing in bonds, as their name suggests, has a more stable return rate than investing in stocks. As a result, the average return is lower.
Corporations and governments issue bonds with a set repayment period and interest rate. Even though it is impossible to predict the future performance of the stock market, bonds are considered safer investments due to the fact that governments and companies typically pay back their debts (unless one goes bankrupt).
Money market mutual funds = lowest returns, lowest risk
It invests in short-term, high-quality debt. That’s why it’s one of the best investments. Money market funds help investors protect their retirement savings while earning interest – usually between 1% and 3% a year.
Focus on what matters
- When it comes to your financial future, investing based on your past performance might feel instinctive, but it is not always the best choice.
- A key component of buy-and-hold strategies and other retirement investing strategies is investing in mutual funds.
- The performance-based strategy of switching between stocks rarely results in large gains.
- Particularly with mutual funds, since each transaction could incur costs that reduce any potential long-term gains.
- Mutual funds should be considered in the context of your overall portfolio when buying them.
- An investment in a mutual fund is different from buying stock in a single company.
- Diversification reduces risk.
- You can create a diversified portfolio with a few mutual funds or exchange-traded funds, as well as fine-tune it at least annually.
- At the time of publication of this article, the author held no positions in the aforementioned securities.
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