American Funds Built For Long
With over 90 years of operation, American Funds is one of the largest mutual fund firms in the world. The best American Funds to hold are some of their oldest mutual funds with proven track records. Their popularity stems from their long history, diverse selection of funds, and below-average expense ratios.
Learn more about American Funds and the top five funds for long-term investors.
Retirement Income Fund Vs Target Date Fund
Target-date funds are designed to make investing for retirement as simple as possible. Generally speaking, target-date funds are constructed around a planned future retirement date, which is most often included in the name of the fund, like the Vanguard Target Retirement 2060 Fund .
This objective defines the important differences between these two types of funds. First, target date funds designed for retirement 20 or more years from now typically have a 90% stock and 10% bond asset allocation. While this aggressive allocation is ideal for long-term investors, its not well suited for retirees.
Second, target date funds change their allocation as the target date approaches. These changes shift the allocation more towards fixed income to reduce the volatility of the portfolio as holders get closer to retirement. These changes in asset allocation are known as a funds glide path. Retirement income funds do not change the asset allocation over time.
Target date funds are designed to offer a single fund solution for retirement planning. These funds invest in domestic and international stocks and bonds in one fund. In contrast, retirement income funds are not necessarily designed to be a retirees sole investment choice. Some on our list might serve that purpose, such as the Wellington fund, but thats the exception, not the norm.
The author held no positions in the securities discussed in the post at the original time of publication.
Even Just One Of These Funds Could Serve You Well Over The Long Run
When investing in retirement, you may not have the same energy and interest to study stocks and other investments, carefully deciding which to buy and when — and then when to sell. Your skills could decline over time, too. So consider investing in exchange-traded funds with some or much of your retirement money.
Really, just one ETF, such as the first one below, could be all you need for retirement — but here are a handful to consider.
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Vanguard Short Term Investment
- Risk: very low
- Total net assets: $57.8 billion
- Asset allocation: 23.1% in Aaa, 15% in A3, 9.7% in U.S. government
- Average annual returns since inception: 5.89%
- Benchmark annual returns since inception: 6.54%
The Vanguard short term investment-grade fund unites bonds with high and medium quality. Although the maturity of this fund consists of short term maturity bonds, its data shows that it is a suitable choice for retirees.
The VFSTX fund las a very low risk of 1 out of 5. The minimum investment is only $3,000, which makes it widely accessible. Its expense ratio is higher compared to the VTMFX fund, but the low risk might be a good excuse for it. After all, a 0.2% expense ratio is still among the lowest in the mutual fund market.
The best thing is that the returns of the fund are relatively good compared to the low risk of 5.89%.
The figures above show a correlation with the benchmark index. It is not as high as with the VTMFX fund, but it is there showing that the fund is broadly affected by general market conditions.
American Funds American Balanced: Buy
Rank among the top 401 funds: #37
Best for: Conservative investors with capital preservation and growth in mind.
Like most so-called balanced funds, American Funds American Balanced typically invests 60% of assets in stocks and 40% in bonds. The 10-manager team can dial risk up or down depending on market conditions, but at any given time, the fund must have at least 50% in stocks or at least 25% in bonds. At last report, American Balanced held 62% in stocks, 33% in bonds and 5% in cash.
On the stock side, the managers focus on blue-chip, dividend-paying companies, including Home Depot and Intel . Treasuries, government-guaranteed mortgage debt and investment-grade corporates fill the bond side. The fund yields 1.6%.
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How Target Date Funds Work
Financial services firms manage families of target date funds, with individual versions for each year, past and future. Investors choose a fund that targets their anticipated year of retirement, and they may continue holding it until long after the target year has passed.
With target date funds, the term glide path describes how a funds asset allocation changes over time. All of the funds on this list utilize a through glide path, where the managers continue to adjust the balance of stock and bond funds after the designated target year. For some funds, the asset allocation changes end about five to seven years after the target date. For others, the changes continue for several decades.
For each target date fund in our evaluation, we focused on the 2060 version, suitable for someone looking to retire in about 40 years. In addition, we also evaluated the 2020 version, and some earlier versions, for insight on how the fund familys portfolio evolves as you enter retirement.
The author held no positions in the securities discussed in the post at the original time of publication.
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American Funds Europacific Growth F1
Can anyone run a $154 billion fund successfully?
Well, the nine managers at EuroPacific Growth F1 – each responsible for a portion of its assets – have put up sparkling numbers. Over the past 10 and 15 years, it has beaten the MSCI ACWI ex-USA Index by an average of more than one percentage point per year. It has also topped the benchmark in the trailing three- and five-year periods.
American Funds’ emphasis is always on long-term results, which is the name of the game in retirement. Stocks are typically held four or five years. The managers and analysts are patient investors, who spend most of their time picking good companies at attractive prices, rather than on the macro environment. No surprise, then, that stocks in AEGFX are typically held for about four years.
EuroPacific Growth F1, unsurprisingly, focuses on growth stocks – more than 17% of the portfolio is invested in financials such as pan-Asian life insurance company AIA Group and Indian baking firm HDFC Bank , with another 14% in consumer discretionary and 12% in technology.
AEGFX isn’t afraid of emerging markets, either, allocating a third of its assets to EM stocks.
A Total Us Stock Market Fund
An S& P 500 index fund is terrific, but it doesn’t exclude the many smaller companies in America, such as Kohl’s, Mattel, The New York Times, Harley-Davidson, and homebuilder Toll Brothers. If you’d like your financial fortunes tied to just about all companies on the major American stock exchanges, consider investing in a total U.S. stock market ETF, such as the Vanguard Total Stock Market ETF.
This ETF has an ultra-low annual fee of 0.03% — which is not surprising, as it’s a Vanguard fund, and Vanguard is known for low fees.
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Best American Funds: American Funds Fundamental Investors R6
Expenses: 0.31%Minimum Initial Investment: $250
If you want to buy low-cost mutual funds and avoid loads, youll like American Funds Fundamental Investors R6 .
If youve already checked out the first two low-cost funds in this article, you may be noticing a trend: The cheapest shares of American Funds available to the most amount of investors are the R shares, which can be purchased through 401 plans that offer American Funds.
Fundamental Investors is another outstanding fund in the American Funds lineup and like many of their funds the management has a team structure that consistently leads to above-average performance.
The Fundamental Investors fund has 7 managers and invests in a range of large-cap stocks like Amazon, Microsoft Corporation , and Broadcom, but the fund can also hold non-U.S. stocks.
If you invest through an advisor and want a cheap share class version, ask for American Funds Fundamental Investors Class F-2 , which has an expense ratio of 0.41%.
The Best American Funds For 401 Retirement Savers
American Funds is the third-largest fund family in the country, with $1.6 trillion in mutual fund assets. Many of its mutual funds are among the biggest in the land, too. So it should come as no surprise that fund company’s portfolios are popular in 401 plans.
In fact, eight actively managed American Funds portfolios and five of the firm’s target-date funds rank among the top 100 funds with the most 401 assets – a list prepared by financial data company BrightScope.
You don’t read much about American Funds on Kiplinger.com or in Kiplinger’s Personal Finance magazine because until recently the firm’s funds were sold only through advisers, and with a hefty sales charge, too. At Kiplinger, we favor funds you can buy for no transaction fee. But American Funds recently launched a no-load F1-share class that do-it-yourself investors can buy through a handful of online brokers, including Fidelity and Schwab. plan, of course, you don’t pay a sales charge to buy shares in any American Funds portfolio.)
Here is our look at the best American Funds options for your 401, as well as its other popular offerings that don’t quite hit the mark. We analyzed the eight American Funds portfolios, as well as its target-date series, that rank among the top 100 401 funds, rating each Buy, Sell or Hold.
Rank among the top 401 funds: #82
Best for: Investors looking for a growth stock fund.
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Best Mutual Funds For Retirement: Fidelity Capital & Income
Expenses: 0.75%Minimum Initial Investment: $2,500
One of the best high-yield mutual funds to buy on the market today is Fidelity Capital & Income , a fairly inexpensive mutual fund in the high-income space.
Investors should note that, although the 3.7% yield and 9.9% lifetime average annual return are outstanding, the yield and return come with some risk.
The bond portfolio consists mostly of investment-grade and below-investment grade issues. FAGIX also allocates about 20% of the portfolio to growth stocks, such as Skyworks Solutions Inc , Qorvo Inc and Alphabet Inc .
Translating Need And Risk Into Withdrawal Rate Ranges
The Portfolio Solutions Committee used extensive research and modeling to determine the suggested annual withdrawal rate ranges for each of the three portfolios .
*Risk of loss, in this case, is defined as an increased exposure to equities, which can lead to greater volatility in the portfolio and potentially impact both withdrawal rates and whether overall assets invested will decline over time.
Each retirement income portfolio is designed to address varying income needs and risk tolerances, and each has a suggested annual withdrawal rate range.
These suggested withdrawal rate ranges:
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American Funds Has 13 Actively Managed Mutual Funds Among The 100 Most Popular 401 Offerings We Look At The Best American Funds In That Group As Well As Some Of The Laggards
We don’t write about American Funds much on Kiplinger.com or in the pages of Kiplinger Personal Finance magazine. That’s because these funds, which are managed by parent company Capital Group, are primarily sold through advisers.
For years, the funds charged a front-end load , which made it ineligible for recommendation in our book literally. Now, however, at some brokerage firms, you can buy a no-load share class for no transaction fee.
But American Funds is a powerhouse in the 401 world, where investors of all sorts can access them. Six of its funds appear among the 100 most widely held funds in employer-sponsored retirement savings plans another seven of its target-date funds, American Funds Target Date Retirement series, also rank among the top 100. In this, our annual review of the biggest 401 funds in America a list that comes courtesy of financial data firm BrightScope we take a closer look at the most popular funds from Capital Group.
The company says its aim is to create a diversified portfolio that can produce good results with less volatility. It also means that even as assets grow in any given fund, the firm isn’t forced to close it to new investors Capital Group simply adds more managers. As a result, several American Funds portfolios are among the biggest funds in the country by assets.
In other words: Buy shares in this fund, and you’re done.
American Funds R Shares: ‘r’ Is For Retirement
To get around the sales charge challenge in 401 plans, brokers can use American Funds Class R shares for retirement plans like 401s. Class R shares don’t have a front-load or back-load sales charge, but most of them do carry an annual expense.
Since expenses are a big factor in long-term returns , you’d be smart to lean toward the cheapest R shares from American Funds.
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American Funds Capital World Growth And Income: Hold
Rank among the top 401 funds: #85
Best for: Low-risk investors who seek exposure to foreign and U.S. dividend-paying stocks.
As its name suggests, American Funds Capital World Growth and Income buys shares in companies all over the globe with the goal of providing capital appreciation and income.
The good news: It has been consistently less risky than its peers – mutual funds that invest in large, growing companies around the world – over the past 15 years.
The not-so-good news: It’s just kind of a ho-hum, average choice in this category.
CWGIX invests in well-established foreign and U.S. companies that pay dividends or have the potential to pay them at some point down the line. Seven managers divide the assets and invest independently of each other. Nearly 46% of the fund’s assets are in the U.S., a few ticks above average for the fund relative to the past five years.
Best American Funds For 401 Plans
Although 401 members don’t get to choose which funds go into a 401 plan, they still get to choose which funds to invest in among those offered in the plan.
This list of the best American Funds for 401 plans is mostly geared toward the decisionmakers . Still, it’s meant to be useful for 401 members as well. To help you compare, look at the costs of the A share class, which is the most popular fund to buy outside of 401 plans, and the cheapest R share version, which is mostly the R6 shares.
American Funds, The Growth Fund of America: This fund is a large-cap growth fund. This means you’ll be exposed to stocks like Amazon and Alphabet . Although not the top performer in the American Funds lineup, The Growth Fund of America is one of the oldest and most reliable. The Class R-6 shares have expenses of just 0.30%, which compares to 0.64% for the Class A shares .
American Funds, Fundamental Investors: One of the funds with a top rating in the American Funds lineup is the Fundamental Investors Fund. It’s often in the top 10% of funds in the large-blend group. If you’re looking for active management, this fund might be a better choice than a passively managed S& P 500 index fund. The Class R-6 shares have costs of just 0.28%, which compares to 0.61% for the Class A shares .
It’s also important to note that these featured funds are good, no matter the share class. The lower the expense ratio, the better, and remember to avoid paying loads.
Best American Funds: American Funds Smallcap World R6
Expenses: 0.71%Minimum Initial Investment: $250
If you want to buy an aggressive fund that holds international stocks, the best low-cost fund is American Funds Smallcap World Fund Class R-6 .
Smallcap World is one of just a handful of mutual funds that focus on small companies from all around the globe. Managers look for high-quality stocks with market caps below $4 billion at the time of purchase.
Top holdings include Dominos Pizza, Inc. , Incyte Corporation , and Molina Healthcare, Inc. .
The R6 share class at American Funds is consistently the cheapest share class that is accessible to individual investors. However theyre only traded in employer-sponsored retirement plans. If you trade through a fee-only advisor, the best low-cost version is American Funds Smallcap World Fund Class F-2 , which has an expense ratio of 0.82%.