Mutual funds offer a lot of advantages to investors, particularly for retail investors who may have limited time, a low appetite for risk and only a passing knowledge of how the stock market works. People wanting to put away their hard-earned money for retirement often choose these investment vehicles because they provide exposure to a large bundle of stocks and provide a greater margin of safety than individual stocks.
Industry data shows that mutual funds remain one of the most popular investment vehicles for Americans. According to Statista, 45% of households in the U.S. owned the shares of at least one mutual fund in 2021. They can also be a great way for investors to ride out market downturns such as the one we’re experiencing this year because of their diversification, low fees, and relative safety. Many mutual funds also pay regular dividends to investors.
Here are seven of the best mutual funds to hold in a 401k account.
Best Mutual Funds for Your 401k: BlackRock Energy Opportunities Fund (BACIX)
Although oil and natural gas prices continue to fluctuate and are below the highs seen earlier this year, the energy sector remains a bright spot in an otherwise down market this year. The S&P 500 Energy Index is up 69% in 2022, compared with the 17% decline of the broader S&P 500 benchmark index.
Investors looking for ways to profit in the current doom-and-gloom market need to have exposure to the energy sector. The BlackRock Energy Opportunities Fund (MUTF:BACIX) provides the perfect balance of oil-and-natural gas stocks. The top holdings of the fund include stocks of leading companies, such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Shell (NYSE:SHEL).
BACIX also gives investors exposure to leading oil and gas companies in Canada, Europe and Asia. It covers the full production cycle of oil and natural gas products, from exploration and drilling to refining and oil services. The mutual fund also pays an annual dividend and charges an annual fee of 1.33%, which is reasonable.
In the last 12 months, the Energy Opportunities Fund has gained 44% and currently trades at $14.02 per unit. With a top rating of four stars from Morningstar, this energy fund is a great way for investors to play the current boom of oil-and-natural gas stocks.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
Vanguard is one of the biggest investment management companies in the world, second only to BlackRock (NYSE:BLK). Started by John Bogle in 1975, Vanguard today has more than $7 trillion of assets under management. The Pennsylvania-based company offers exchange-traded funds (ETFs) and mutual funds.
One of its most popular investment vehicles is its 500 Index Fund Admiral Shares (MUTF:VFIAX). This is a fund that tracks the performance of the benchmark S&P 500 index. Specifically, it provides investors with exposure to the 500 biggest U.S. companies that account for 75% of the U.S. stock market’s value.
In addition to giving investors diversification and broad exposure to the overall market, Vanguard’s funds are notoriously inexpensive to own. Vanguard prides itself on offering some of the lowest fees in the global fund industry. VFIAX’s expense ratio is currently 0.04%, which is rock bottom for a mutual fund.
The top holdings of the 500 Index Fund, mirroring the weighting of the S&P 500 index, include the stocks of companies such as Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) and UnitedHealth Group (NYSE:UNH). The fund’s performance is identical to that of the S&P 500 index. Indeed, over the past five years, the fund has gained 55%, matching the increase of the S&P 500.
Best Mutual Funds for Your 401k: Invesco Gold and Precious Minerals Fund (OPGSX)
Mining can be a tough game. Companies large and small scour the earth in search of precious metals to be extracted from the ground. This often takes them into inhospitable locations and requires large amounts of upfront capital investment. As a result, it can be difficult for investors to distinguish winning mining stocks from losing ones.
Atlanta-based investment management company Invesco (NYSE:IVZ) aims to simplify things for investors with its Gold and Precious Minerals Fund (MUTF:OPGSX). This four-star rated fund invests in leading mining companies that provide exposure to gold and other precious metals.
The holdings of the OPGSX fund include global mining giants, such as Newmont (NYSE:NEM), Barrick Gold (NYSE:GOLD), and Ivanhoe Mines (OTCMKTS:IVPAF). The fund is one of the older picks on this list, having been created in 1983.
Today it has $1.77 billion of total assets, and while it is down 17% this year amid broad market volatility, the Gold and Precious Minerals Fund has gained 32% over the past five years. It also charges a comparatively low management fee of 0.58% and provides investors with an annual dividend that paid out 93 cents per unit last December.
JPMorgan Europe Dynamic Fund (VEUAX)
Investors looking for exposure to foreign stocks should consider the Europe Dynamic Fund (MUTF:VEUAX) from leading commercial bank JPMorgan Chase (NYSE:JPM). The fund invests in a wide range of large and small companies that are located in Western Europe, as well as in emerging Eastern European countries.
The fund holds a total of 68 stocks, including the securities of leading companies such as food giant Nestle (OTCMKTS:NSRGY), pharmaceutical company Nova Nordisk (NYSE:NVO), and oil major BP (NYSE:BP). Much of the portfolio is comprised of leading European companies with track records of strong performances.
While the Europe Dynamic Fund is down 18% so far this year, it has gained 128% since the 2009 financial crisis and has grown considerably since its inception in 1995. The management expense fees are a little higher at 1.26%, but that is in line with the fees of similar mutual funds.
Investors should be aware that this fund requires a minimum investment of $1,000 and that European markets have been particularly volatile this year following Russia’s invasion of Ukraine in February.
Best Mutual Funds for Your 401k: T. Rowe Price Emerging Markets Stock Fund (PRMSX)
Another mutual fund started in 1995 is T. Rowe Price’s Emerging Markets Stock Fund (MUTF:PRMSX). This is a fund that seeks to provide investors with exposure to companies in developing markets, primarily China (33%), Brazil (8%) and South Korea (13%).
The fund’s management fee of 1.21% is consistent with that of other mutual funds, and the portfolio includes the shares of companies such as Taiwan Semiconductor (NYSE:TSM), Samsung and Alibaba (NYSE:BABA). The fund is up more than 70% since its inception more than 25 years ago, but it is down 25% this year due to the market’s ongoing volatility.
While heavily weighted toward Asia, the Emerging Markets Stock Fund does give investors some exposure to South America, mainly Brazil. The fund offers exposure to some of the largest and best-performing companies in China and throughout Southeast Asia.
As with other mutual funds in this article, T. Rowe Price’s Emerging Markets Stock Fund requires a minimum investment of $1,000.
Gotham Large Value Fund (GVALX)
Founded and managed by famed value investor Joel Greenblatt, Gotham Funds is a boutique mutual fund company that offers a handful of investment vehicles. One of them is the Gotham Large Value Fund (MUTF:GVALX), which takes long positions in leading, established companies in the S&P 500 index.
Gotham’s holdings are chosen based on their market capitalization, and the firm limits itself to buying the shares of the 500 -700 largest U.S. companies by market capitalization. Among its holdings are major U.S. companies such as Meta Platforms (NASDAQ:META), Intel (NYSE:INTC), and General Electric (NYSE:GE). The fund has been a strong performer since its inception in 2015, returning nearly 50% to investors in the past seven years.
Even this year, the mutual fund is performing better than the market, as the fund is down just 5% in 2022. That’s less than half the 17% decline of the S&P 500 index. this year.
The Gotham Large Value Fund is clearly targeting high-net-worth individuals, as it requires a minimum investment of $100,000. Still, for people who have the means, this is a solid mutual fund that focuses on value investing for the long-term and has a track record of beating the broader stock market.
The fund is also well diversified and gives investors access to the stocks of sectors ranging from industrials and financials to health care and real estate.
Best Mutual Funds for Your 401k: Vanguard Information Technology Fund (VITAX)
When it comes to growth, technology stocks are still likely to lead the way over the long term. And a mutual fund that focuses exclusively on the stocks of technology companies can be a great way for investors to gain exposure to the sector while diversifying their portfolio and offering a great deal of safety. Vanguard’s Information Technology Fund (MUTF:VITAX) is a great option for people who want access to leading, high-growth, tech stocks.
The top holdings of the fund include Apple, Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA) and Adobe (NASDAQ:ADBE), to name only a few.
The tech sector is down this year, causing VITAX to be down 26% in 2022. However, the fund has gained 108% over the past five years. Like all Vanguard mutual funds, the Information Technology Fund charges a rock-bottom fees of just 0.10%, which is about a tenth of the fees charged by competing mutual funds.
This fund also pays a quarterly dividend of 30 cents per unit held, which is decent and should help investors when the markets are going through a difficult period, as is the case this year. In total, the fund holds 379 stocks of technology companies large and small, and it has no minimum investment requirement.
On the date of publication, Joel Baglole held long positions in AAPL, MSFT and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
This content was originally published here.