The best mutual funds May 2024
Published 7:30 AM EDT, Tue March 26, 2024
A well-balanced investment portfolio consists of a mix of stocks and bonds from companies of various sizes and sectors. Mutual funds can help you get that diversification easily and at a low cost — but only if you know what to look for. The best mutual funds perform well over the long term, are easy to invest in, well managed and inexpensive.
Methodology
To construct our list of the best mutual funds, we used Fidelity Investment’s mutual fund screener. After excluding money market funds, we screened for funds with Morningstar Star ratings of four stars or higher and at least $5 billion of fund assets, resulting in a list of 507 funds. We then screened for funds with minimum initial investments of $3,000 or lower, net expense ratios of 0.5% or lower, manager tenure of five years or longer and Morningstar return ratings that were above average or high versus their category. The screen resulted in a list of 33 funds. We then eliminated any institutional and state-specific funds, resulting in a list of 24 funds from different providers that were scored according to several key metrics. Read our full methodology here.
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Fidelity 500 Index Fund
: Best overall
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Fidelity Large Cap Growth Index Fund
: Best for growth investors
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Fidelity Investment Grade Bond Fund
: Best for bond investors seeking income
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Fidelity Total Bond Fund
: Best for bond investors
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Vanguard Wellesley Income Fund Investor Shares
: Best for income with stock and bond exposure
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Schwab Fundamental US Large Company Index Fund
: Best for investors seeking exposure to large companies
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Schwab S&P 500 Index Fund
: Best for investors seeking a low-cost option
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Vanguard High-Yield Tax-Exempt Fund
: Best for bond investors seeking tax-exempt income
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Fidelity Conservative Income Bond Fund
: Best for conservative bond investors
Fidelity 500 Index Fund
Best overall
If you’re looking for easy and inexpensive exposure to the S&P 500 index, look no further than the Fidelity 500 Index Fund (FXAIX) from trusted mutual fund giant Fidelity Investments. With no minimum investment, just a 0.02% expense ratio and the longest manager tenure on our list at 20 years, this fund has a five-star rating from Morningstar. Investors have enjoyed a 10.7% annualized return since the fund’s inception in 1988, and it keeps attracting newcomers, leading it to have the highest net assets of all the funds on our list.
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While the Fidelity 500 Index Fund is a great way to invest in big names and lesser-known companies alike, it focuses on the largest 500 companies in the US stock market. That means you’ll get exposure to companies that will perform well in the coming years as well as those that may stumble.
- Low expense ratio
- Easy way to diversify your portfolio
- No minimum investment
- Top 10 holdings make up over 30% of portfolio
- S&P 500 only includes 500 of the largest US companies
- Index funds aren’t designed to beat the market
Whether you’re a new investor looking for a simple way to get broad diversification or an experienced investor hoping to bulk up your portfolio for a low cost, the Fidelity 500 Index Fund provides one of the best ways to get exposure to the overall US stock market.
Fidelity Large Cap Growth Index Fund
Best for growth investors
Launched in 2016, the Fidelity Large Cap Growth Index Fund (FSPGX) tracks the Russell 1000 Growth index as its primary benchmark to give investors exposure to growth-oriented stocks of some of the largest US companies. While past performance doesn’t guarantee future returns, its nearly 17% annualized return since the fund’s inception is impressive and the highest on this list.
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Buying shares of this fund will only give you exposure to some of the largest companies in the US, and it’s fairly concentrated. The top 10 holdings — including Microsoft, Apple, Nvidia, Amazon and Meta — make up a whopping 52% of the fund overall.
- Low expense ratio
- Strong past performance
- No minimum investment
- Top 10 holdings make up around 50% of the fund
- Only provides exposure to large companies
- Growth stocks can be riskier than other types of stocks
Growth stocks belong to companies with revenues that are growing faster than average, which is in part why the fund’s performance has been so strong since 2016. If you’re looking to add growth and large stocks to your portfolio, the Fidelity Large Cap Growth Index Fund is a good way to do so.
Fidelity Investment Grade Bond Fund
Best for bond investors seeking income
With the Fidelity Investment Grade Bond Fund (FBNDX), Fidelity’s fund managers seek a higher level of current income. They do this by investing at least 80% of the fund in all types of medium- and high-quality investment-grade debt securities, leaving room for some below-investment-grade debt. The fund benefits from a strong team of experienced managers and Fidelity’s history of impressive fixed-income offerings, exemplified by the fund outpacing 95% of its competitors in 2020, according to Morningstar.
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This fund is dependable and pays a 4.8% yield, but it can be volatile at times. It also doesn’t have the same growth potential as a stock fund given its income objective.
- Gives broad exposure to investment-grade debt
- Strong strategy from fund managers with tenure of up to 19 years
- No minimum investment
- Relatively high expense ratio
- Lower growth potential than stock funds
- Can be volatile
Investors seeking income can invest in a wide range of mostly investment-grade bonds with this fund managed by Fidelity’s experienced team. If you’re looking for a way to add fixed income to your portfolio, this is a simple and relatively low-cost way to do so.
Fidelity Total Bond Fund
Best for bond investors
Fund managers of the Fidelity Total Bond Fund (FTBFX) aren’t only focused on investment-grade corporate credit, US Treasuries and mortgage-backed securities. They invest around 20% of the fund in lower-quality debt securities, which gives the fund “an edge in risk-on markets” compared to some of its more conservative peers, according to a recent Morningstar analyst rating.
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The fund is actively managed, putting its expense ratio on the high end of the funds we reviewed. The fund’s annualized return is also lower than many of the other funds (4.1% as of the end of 2023), but that makes sense since it’s a bond fund being compared to stock funds.
- Strong strategy from fund managers with tenure of up to 19 years
- Exposure to a wide range of fixed-income investments
- No minimum investment
- Relatively high expense ratio
- Lower growth potential than stock funds
- Can be more volatile than some of its more conservative peers
A diversified portfolio will likely include a blend of stocks and bonds. The Fidelity Total Bond Fund is a relatively low cost way to get a range of those fixed-income investments in the mix.
Vanguard Wellesley Income Fund Investor Shares
Best for income with stock and bond exposure
Vanguard is a known and trusted name in the investing world thanks in part to its founder’s creation of the index fund, and its experience shines through with this 40-year-old balanced fund. Made up of both stocks and bonds, hence the “balanced” label, the Vanguard Wellesley Income Fund Investor Shares (VWINX) aims to provide investors with steady income. During the decade ending in February 2023, the fund’s income level has been steadily higher than that of its median peer, while its volatility has been lower, according to Morningstar.
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This balanced fund provides diversification and income, as it allocates a third of its holdings to stocks that pay dividends and the rest to bonds. But it requires a minimum investment of $3,000, and its moderately conservative allocation means it won’t have the same returns as an all-stock portfolio.
- Provides steady income
- Exposure to both stocks and bonds
- Lower volatility than peers
- Lower growth potential than an all-stock portfolio
- Moderate-to-high short-term fluctuations
- Relatively high minimum investment
Depending on their risk tolerance and time horizon, investors may want exposure to both stocks and bonds — and with this fund, they can get those all in one place. If you’re looking for diversification and income with less volatility than other balanced funds, the Vanguard Wellesley Income Fund Investor Shares may make sense for you.
Schwab Fundamental US Large Company Index Fund
Best for investors seeking exposure to large companies
The Schwab Fundamental US Large Company Index Fund (SFLNX) provides a simple, low-cost way to invest in some of the largest US companies with no minimum investment. It takes a contrarian approach with the Russell RAFI US Large Company Index as its underlying index, which weights constituents based on select fundamentals instead of market capitalization. The fund is well-diversified, giving investors exposure to sectors all over the market, including financials, technology and health care.
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While the fund’s “strict rebalancing schedule” can be seen as a benefit, a Morningstar analyst pointed out in a 2023 rating that it can sometimes lead the fund to “extend too much rope to floundering firms and prematurely cut ties with winners.” It’s also a bit more pricey than other passively managed funds on the list, with an expense ratio of 0.25%.
- Well-diversified between market sectors
- Simple way to get exposure to some of the largest US companies
- No minimum investment
- Strict rebalancing schedule can lead to prematurely selling potential winners
- Pricier than other passively managed funds
- Only provides exposure to large companies
A well-diversified portfolio will include both large and small stocks. The fund may make sense in a portfolio for investors who are looking for easy access to a slice of large companies.
Schwab S&P 500 Index Fund
Best for investors seeking a low-cost option
Like Fidelity, Charles Schwab is a trusted investment firm with a long history of working with investors — and like Fidelity, it has its own S&P 500 index fund. The Schwab S&P 500 Index Fund (SWPPX) is virtually tied with the Fidelity 500 Index Fund (FXAIX) for lowest expense ratio on this list and, with no minimum investment, it’s a cheap and easy way to get exposure to companies you know like Apple and Amazon, as well as those in the industrial, financial and other S&P sectors you may have never heard of.
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You’re guaranteed some diversification with this fund, but keep in mind that it will still only give you exposure to the S&P 500 companies, which are the largest in the US. The fund also has fewer assets than Fidelity’s S&P 500 index fund ($81 billion as of the end of 2023 compared to $472 billion), as it’s a relative newcomer given its inception date in 1997.
- Low expense ratio
- Easy way to diversify your portfolio
- No minimum investment
- Top 10 holdings make up 32% of portfolio
- Index funds aren’t designed to beat the market
- Fewer assets than its Fidelity counterpart
If you’re looking for a low-cost way to get broad exposure to 500 of the largest US companies, the Schwab S&P 500 Index Fund is a strong pick. It can stand on its own if you’re a new investor or contribute to the overall diversification of a larger portfolio.
Vanguard High-Yield Tax-Exempt Fund
Best for bond investors seeking tax-exempt income
The Vanguard High-Yield Tax-Exempt Fund (VWAHX) aims to provide a high level of federally tax-exempt income by investing at least 80% of its assets in investment-grade municipal bonds. For an actively managed fund with managers that maintain exposure to slightly more credit risk on the long end of the muni market — which has helped it outperform its Bloomberg Municipal Bond Index benchmark over the past one-, three-, five- and 10-year periods — the fees are very low.
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While the fund’s exposure to lower credit quality securities may provide higher yield, it also opens up the fund to price volatility.
- Tax-exempt income
- Relatively low expenses
- Strong past performance
- Credit and interest-rate risk can make the fund volatile
- Relatively high minimum investment
- Doesn’t appeal to all tax brackets
If you want to diversify your bond portfolio’s tax treatment, you may want to consider the Vanguard High-Yield Tax-Exempt Fund. The fund typically appeals to investors in higher tax brackets.
Fidelity Conservative Income Bond Fund
Best for conservative bond investors
The Fidelity Conservative Income Bond Fund (FCNVX) aims to get a high level of current income for its investors that is consistent with preservation of capital. Morningstar calls the ultrashort bond fund an “enhanced cash offering” that’s even more conservative than most of its peers in the research firm’s ultrashort bond category.
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While the fund comes at a relatively low cost and is managed by an experienced team, 25% of the overall fund is invested in the financial services industry, which limits its diversification. Its annualized performance over the fund’s lifetime is also the lowest on this list, though that’s the trade-off for its low risk.
- Enhanced cash offering
- Low risk
- No minimum investment
- Low performance over the fund’s lifetime
- Low growth potential
- Financial services focus limits diversification
If you’ve got decades until retirement, this fund is likely not for you. But if you’re looking to preserve your capital with a low-risk way to gain some yield without high returns, the Fidelity Conservative Income Bond Fund is a solid option to consider.
Our picks at a glance
| Mutual fund | Expense ratio | Life of fund annualized return | Minimum investment |
|---|---|---|---|
Fidelity 500 Index Fund (FXAIX)
| 0.02%
| 10.7%
| $0
|
Fidelity Large Cap Growth Index Fund (FSPGX)
| 0.04%
| 16.9%
| $0
|
Fidelity Investment Grade Bond Fund (FBNDX)
| 0.45%
| 6.3%
| $0
|
Fidelity Total Bond Fund (FTBFX)
| 0.45%
| 4.1%
| $0
|
Vanguard Wellesley Income Fund Investor Shares (VWINX)
| 0.23%
| 9.2%
| $3,000
|
Schwab Fundamental US Large Company Index Fund (SFLNX)
| 0.25%
| 9.4%
| $0
|
Schwab S&P 500 Index Fund (SWPPX)
| 0.02%
| 9.4%
| $0
|
Vanguard High-Yield Tax-Exempt Fund (VWAHX)
| 0.17%
| 6%
| $3,000
|
Fidelity Conservative Income Bond Fund (FCNVX)
| 0.25%
| 1.4%
| $0
|
Why consider a mutual fund?
- Low costs: Many popular index funds have expense ratios of less than 0.05%, which equates to just $5 in annual fees for every $10,000 invested, though investors will generally pay more for active management.
- Diversification: Buying an S&P 500 index fund, for example, gives investors easy access to a diversified portfolio of the largest US stocks. Buying a bond index fund can do the same for the fixed-income portion of an investor’s portfolio.
- Professional management: Actively managed mutual funds may cost a bit more than index funds, but their managers often have lengthy tenures and the expertise to potentially outperform the markets they’re compared against.
What are mutual funds?
Mutual funds are a type of investment fund in which your money is pooled with other investors and used to buy financial assets like stocks and bonds. Unlike exchange-traded funds (ETFs), mutual funds can only be bought and sold once per day, after the market closes.
Many mutual funds are actively managed, meaning a professional is selecting which stocks and bonds should be added to and removed from the fund based on extensive research. But mutual funds can also be passively managed and pegged to an index, like the S&P 500.
The funds can be broad, with exposure to securities from all aspects of the market, or they can focus on a specific market niche.
The different types of mutual funds
There are many different types of mutual funds to choose from — and the ones you pick should depend on your specific goals, risk tolerance and time horizon. The types of mutual funds include:
- Equity mutual funds: These are mutual funds that invest exclusively in stocks. They may invest in the stock market broadly or focus on a specific area of the market, like health care or technology. They may also invest in companies of specific sizes, which will typically be reflected in their fund name (funds investing in large companies, for example, are often called “large-cap” funds).
- Fixed-income mutual funds: These funds focus on fixed-income investments, like bonds, which pay their investors a fixed rate of return. The funds may invest in a specific type of fixed-income investment, like government bonds.
- Target-date funds: As you near retirement, you’ll likely want to shift your portfolio from riskier securities to less-risky securities. Target-date funds make this shift for you automatically based on a “target date” when you’ll need the money.
- Index funds: An index fund can be a type of mutual fund, though they can also be ETFs. These funds attempt to replicate the performance of a market index, like the S&P 500.
- Asset allocation funds: Sometimes called “balanced funds,” these funds own a blend of securities — like stocks, bonds and commodities — to help diversify your portfolio and limit volatility.
- Money market funds: This type of mutual fund invests in short-term debt, cash and cash equivalents making them lower-risk than other types of mutual funds. Investments can include US Treasury bonds and certificates of deposits (CDs), for example.
Pros and cons of investing in mutual funds
One of the biggest advantages to investing in a mutual fund is its diversification. When you buy a single stock, you’re not only banking on that stock’s value increasing, you’re also potentially missing out on the many different stocks out there that may outperform the one you’ve picked. But when you invest in a mutual fund, you’re spreading out your money; in short, you’re not putting all your eggs in one basket.
You’re also increasing the chances that you have exposure to at least some securities that jump in value over time. The price of Nvidia (NVDA) stock, for example, has jumped roughly 2,000% over the last five years, and if you invest in a mutual fund that offers exposure to the broader stock market, chances are you have benefited from Nvidia’s growth.
Another benefit of mutual funds is that they typically come with the research and advice of a fund manager whose main goal is to make that fund outperform the overall market.
“Fund managers do research beyond what you can do,” said Russel Kinnel, director of manager research at Morningstar Research Services.
At one time, they’re researching securities across a wide range of sectors, sizes and markets. They can also get better prices thanks to their Wall Street contacts and ability to buy in bulk. “It doesn’t work that way if you’re an individual trying to invest $20,000 in a bond,” Kinnel added.
With the fund managers also comes simplification. You don’t have to watch the securities held in the mutual fund too closely like you would with individual securities in your own portfolio. Mutual funds are also easy to buy via brokerage firms like Charles Schwab, Fidelity Investments and Vanguard.
But mutual funds come with downsides, too — most notably, the costs. Funds charge an expense ratio, which is the cost you pay for investing in the fund, and because mutual funds are often actively managed, those fees tend to be higher. And while the diversification of funds is a benefit, it also means you may be exposed to some securities that aren’t doing well, which you aren’t able to remove from the fund.
| Pros | Cons |
|---|---|
Offer diversification by spreading out your investment across wide range of securities in a single fund
| High expense ratios can eat away at investors’ returns over time
|
Actively managed mutual funds have experienced managers that attempt to outperform a fund’s benchmark
| Diversification means your portfolio will naturally have some exposure to underperforming securities
|
Provide a simple way to manage asset allocations
| May require minimum investments ranging from $500 to $3,000 or more
|
Easy to buy via brokerage firms, retirement accounts or fund companies
| Occasionally pay out taxable capital gains distributions to shareholders
|
The costs associated with mutual funds
When you’re assessing mutual funds, the expense ratio is one of the most important factors to consider, since it determines the cost of investing in the fund. High fees can eat into your returns even if a fund performs well.
Morningstar’s 2022 fund fee study found that the average expense ratio for active funds is 0.59%. That’s $59 on a $10,000 investment. But expense ratios can go up even higher, sometimes above 1%, which can significantly diminish the value of your investment over time.
“Even a small difference of fees over time builds up,” Kinnel said.
You’ll notice that many of the funds on our list are index funds, which means they attempt to mirror rather than outperform an underlying index. Since they don’t have active managers doing research and picking stocks, they tend to have lower fees.
Mutual funds can also have minimum investments, which tend to range from $500 to $3,000.
Mutual fund taxation
Unless you’re holding mutual funds in a tax-advantaged account, such as a workplace 401(k) plan or individual retirement account (IRA), you owe taxes on capital gains when you sell them, just like you would if you sold an individual stock for a gain.
But with mutual funds, you also owe taxes when the fund itself sells a security for a gain, even if you simply held the fund. At least once a year, mutual funds with capital gains are required to pass those capital gains distributions on to shareholders, who will owe tax.
How to choose the right mutual fund for you
Consider your goals and risk profile
As with any investment, you’ll want to consider your goals — like retirement or buying a home — and determine how far you are from those goals and how much risk you’re willing to take. Someone who is in their thirties will more likely have a portfolio mostly consisting of stocks, while someone planning to retire within a few years likely has many more fixed-income investments in their portfolio. You can pick an equities fund, fixed-income fund or a combination depending on what will help you maintain a well-balanced portfolio.
Decide where you want to invest
You also need to decide if you want exposure to the market overall, which you can do via an index fund like the Fidelity 500 Index Fund. Perhaps you already have small-cap funds in your portfolio and want to invest in a large-cap fund like the Schwab Fundamental US Large Company Index Fund to balance it out. If you find your portfolio has a lot of exposure to the industrial sector but none to the health care sector, you may opt for a sector fund focused on health care stocks.
Check fund and company reputations
You should also consider the reputation of the fund company, Kinnel said. Many of the mutual fund giants you see listed above have been around for decades and are managed by professionals with long tenures. Be sure you’re choosing a fund from a reliable company, which you can do by checking their ratings at firms like Morningstar.
Factor in costs
Of course, don’t forget about the cost. You want to look for funds that meet all the above criteria but also have low fees. In fact, “fees are a better predictor of future returns than past returns are” Kinnel said, since a fund company will usually charge similar fees, but performance can vary widely from one year to another.
Methodology
To construct our list of the best mutual funds, we used Fidelity Investment’s mutual fund screener. After excluding money market funds, we screened for funds with Morningstar Star ratings of four stars or higher and at least $5 billion of fund assets, resulting in a list of 507 funds. We then screened for funds with minimum initial investments of $3,000 or lower, net expense ratios of 0.5% or lower, manager tenure of five years or longer and Morningstar return ratings that were above average or high versus their category. The screen resulted in a list of 33 funds.
We then eliminated any institutional and state-specific funds, resulting in a list of 24 funds from different providers. From this list, we rated funds according to the following criteria:
Life of fund annualized return (25%)
Life of fund annualized returns measures the annualized performance since the fund’s inception, which is a main consideration for most investors. The life of fund annualized returns are as of December 31, 2023.
30-day SEC yield (20%)
Investors often invest in mutual funds for the income they provide, so we scored funds with higher 30-day SEC yields higher. Yields are as of December 31, 2023.
Net expense ratio (15%)
Expense ratios can eat away at investor returns, so we scored funds with lower net expense ratios higher.
Minimum initial investment (15%)
We scored funds with lower minimum initial investments higher, as lower minimums increase access for investors with smaller portfolios.
Fund net assets (10%)
Funds with a greater amount of assets under management were scored higher, as it can be an indication of financial stability and investor trust.
Morningstar Overall Star Rating (10%)
We scored funds with higher overall star ratings higher, although all the funds on our list carry either four- or five-star ratings from Morningstar.
Manager tenure (5%)
We scored funds whose managers have longer tenure on the fund higher, as it can be an indication that a manager is performing well for investors.
Frequently asked questions (FAQs)
Mutual funds are an easy way to diversify your portfolio without having to choose individual stocks and bonds on your own. Many are actively managed, which means professionals are using various time-tested strategies in an attempt to beat the market. Passively managed index funds simply aim to track the performance of market indexes. Either way, investing in a mutual fund over the long term can help you reach financial goals like buying a house, paying for a child’s education and retiring.
The best mutual fund for you may be different from the best mutual fund for another investor. But we’ve highlighted some of the top mutual funds based on fees, yield performance and more. Those include the Fidelity 500 Index Fund, Vanguard Wellesley Income Fund Investor Shares and Schwab Fundamental US Large Company Index Fund.
Vanguard is a trusted investment firm that has been around since 1975. Its mutual funds benefit from a bench of deeply experienced managers, and expense ratios on many of its funds are among the lowest in the industry.
Consider your goals and risk tolerance to choose the right mutual fund for you. Are you seeking income, high growth potential, a mix of the two or something else? Once you determine the type of mutual fund you’d like to add to your portfolio, look for a low-cost, well-diversified fund that’s proven it can perform well over the long term.
Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.
This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.
Note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed or may no longer be available.
