7 Best-Performing Mutual Funds for February 2024

The 7 best mutual funds, in terms of 5-year returns, include U.S. equity funds like SSAQX and FGRTX.
Chris Davis
Kevin Voigt
By Kevin Voigt and  Chris Davis 
Updated
Edited by Chris Hutchison Reviewed by Jody D’Agostini

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Nerdy takeaways
  • To determine the best mutual funds measured by five-year returns, we looked at U.S. equity funds with low costs and minimums.

  • U.S. equity funds like STSEX and USBOX are among the best-performing mutual funds of the last 5 years.

  • Managing your portfolio also means managing your expectations, and you should expect different returns from different types of funds.

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When shopping for mutual funds, we naturally are curious: Which ones are performing the best today?

While that’s a common place to begin your search, remember you’re shopping for tomorrow when looking for the best mutual funds. Top performers in the short term don’t always become long-term winners. The best mutual funds for your portfolio won’t necessarily be the best for your parents, your siblings or your neighbors.

» Looking to fund an IRA before tax day? See our picks for best IRA accounts.

Best-performing U.S. equity mutual funds

To determine the best mutual funds measured by five-year returns, we looked at U.S. equity funds open to new investors with low costs (expense ratios of 1% or less) and minimum investment requirements of $3,000 or less.

For more on how to choose a mutual fund, skip ahead to this section.

Ticker

Name

5-year return (%)

STSEX

BlackRock Exchange BlackRock

16.47%

USBOX

Pear Tree Quality Ordinary

16.38%

PBFDX

Payson Total Return

16.30%

SSAQX

State Street US Core Equity Fund

16.20%

CORRX

Columbia Contrarian Core Adv

15.89%

FGRTX

Fidelity Mega Cap Stock

15.73%

MISEX

Midas Magic

15.64%

Source: Morningstar. Data is current as of market close on Jan. 31, 2024 and is for informational purposes only.

What is a mutual fund?

Mutual funds are companies that combine investors' money to purchase investments. Mutual funds create a more diversified portfolio than most investors can on their own. "Mutual funds" are a category that include index funds, exchange-traded funds, bond funds and target-date funds. Mutual fund investors don’t personally own the stock or other investments held by the fund, but they do share equally in the profits or losses of the fund’s total holdings.

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How to choose the best mutual funds for you

NerdWallet’s recommendation is to invest primarily through mutual funds, especially index funds, which passively track a market index such as the S&P 500. The mutual funds above are actively managed, which means they try to beat stock market performance — a strategy that often fails.

When you're ready to invest in funds, here's what to consider:

  • Decide whether to invest in active or passive funds, knowing that both performance and costs often favor passive investing.

  • Understand and scrutinize fees. A broker that offers no-transaction-fee mutual funds can help cut costs.

  • Build and manage your portfolio, checking in on and rebalancing your mix of assets once a year.

Average mutual fund return

Managing your portfolio also means managing your expectations, and different types of mutual funds should bring different expectations for returns.

For actively managed investments, particularly those with higher fees, it is difficult to consistently beat the index. In fact, it rarely happens. Most investors would be better served with a passive investment strategy. Some investors may be best served by a combination of exchange-traded funds and mutual funds that incorporate large, mid, and small cap stocks as well as international and emerging markets.

Depending on your risk tolerance, you may want to explore bond ETFs as well. But you should always do your homework to explore which investments will make the most sense for your portfolio.

Stock mutual funds = higher potential returns (or losses)

Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks — and different categories of stock mutual funds carry different risks.

For example, the performance of large-cap high-growth funds is typically more volatile than, say, stock index funds that seek only to match the returns of a benchmark index like the S&P 500. (Learn more about stock mutual funds versus index funds.)

Bond mutual funds = lower returns (but lower risk)

Bond mutual funds, as the name suggests, invests in a range of bonds and provide a more stable rate of return than stock funds. As a result, potential average returns are lower.

Bond investors buy government and corporate debt for a set repayment period and interest rate. While no one can predict future stock market returns, bonds are considered a safer investment as governments and companies typically pay back their debt (unless either goes bust).

Money market mutual funds = lowest returns, lowest risk

These are fixed-income mutual funds that invest in top-quality, short-term debt. They are considered one of the safest investments you can make. Money market funds are used by investors who want to protect their retirement savings but still earn some interest — often between 1% and 3% a year. (Learn more about money market funds.)

Mutual fund fees

Even if you find a low-cost mutual fund, you'll still have to pay some fees. Here are some to look out for:

  • Management fees: Also known as "expense ratios," these cover the cost to pay fund managers and investment advisors.

  • 12b-1 fees: Capped at 1%, these fees pay for the cost of marketing and selling the fund and other shareholder services.

  • Other expenses: These may include custodial, legal, accounting, transfer agent expenses and other administrative costs.

The total annual fund operating expenses are expressed as a percentage of the fund's net average assets.

» How do fees impact returns? This mutual fund calculator can help

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Can you lose money in mutual funds?

Yes, as with all investments, it is possible to lose money in mutual funds. But if you invest in well-diversified mutual funds with a long investment timeframe, you'll likely benefit from compound interest and grow your money over time.

Mutual funds: The bottom line

Chasing past performance may be a natural instinct, but it often isn't the right one when placing bets on your financial future. Mutual funds are the cornerstone of buy-and-hold and other retirement investment strategies.

Likewise, chasing one-year returns is not a wise investment strategy. It's a good rule of thumb to look for consistency of returns on a longer time horizon. It would be wise to look at the three, five, and 10 year returns to get a sense of a longer track record.

Hopping from stock to stock based on performance is a rear-view-mirror tactic that rarely leads to big profits. That's especially true with mutual funds, where each transaction may bring costs that erode any long-term gains.

What's important to consider is the role any mutual fund you buy will play in your total portfolio. Mutual funds are inherently diversified, as they invest in a collection of companies (rather than buying stock in just one). That diversity helps spread your risk.

You can create a smart, diversified portfolio with just a few well-chosen mutual funds or exchange-traded funds, plus annual check-ins to fine-tune your investment mix.

Frequently asked questions

Not if you hold them in a tax-advantaged account like a 401(k). Otherwise, selling a mutual fund, or receiving a distribution from one, may generate tax liability. For more information, check out our article about taxes on mutual funds.

One difference is that mutual funds only change price once a day, while exchange-traded funds (ETFs) trade throughout the day like stocks. You can learn more about the differences between ETFs and mutual funds here.

Neither the author nor editor held positions in the aforementioned investments at the time of publication.
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