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.
To determine the best mutual funds measured by year-to-date performance, we looked at large-cap growth funds open to new investors with low costs (no sales commissions and expense ratios of 1% or less). For more on how to choose a mutual fund, skip ahead to this section.
Best large-cap growth funds as of October 2019
These growth-stock mutual funds buy stock in rising U.S. companies with market capitalizations of more than $10 billion.
|Symbol||Fund||Fund performance (YTD)||5-year average annual return||Gross expense ratio|
|BIAGX||Brown Advisory Growth Equity Fund||29.29%||13.98%||0.86%|
|AVEGX||Ave Maria Growth Fund||27.63%||13.67%||0.97%|
|JACTX||Janus Henderson Forty Fund Class T||26.65%||15.15%||0.91%|
|SSGFX||Sextant Growth Fund||26.61%||9.58%||0.92%|
|POGAX||Putnam Growth Opportunities Fund Class A||26.43%||13.48%||0.91%|
|BIAWX||Brown Advisory Sustainable Growth Fund||26.26%||16.84%||0.88%|
|CFGRX||Commerce Growth Fund||25.58%||14.14%||0.77%|
|PREFX||T. Rowe Price Tax-Efficient Equity Fund||25.27%||13.13%||0.81%|
|TWGTX||American Century All Cap Growth Fund Investor Class||23.73%||11.35%||1%|
|FUNYX||Pioneer Fundamental Growth Fund Class Y||23.72%||12.3%||0.77%|
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.
» Related: Best performing stocks this month
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.
» Learn more: How to invest in mutual funds
Below are some of our picks for the best providers for mutual funds and index funds:
» Want to see more options for fund investing? See the full list of brokers
Average mutual fund return
Managing your portfolio also means managing your expectations, and different types of mutual funds should bring different expectations for returns.
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 best-performing mutual funds above are having a good year, but note their five-year average returns usually are far lower than their year-to-date returns (and their 10-year returns lower still). These funds belong to a class known as large-cap high-growth funds, which are designed to take on greater risks as they seek to outperform the market.
As a result, the performance of this kind of mutual fund 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, which has grown an average of 6.6% a year over the past 30 years. (Learn more about stock mutual funds versus index funds.)
Over the past five years, the average equity mutual fund return ranged by category from minus-2.23% for Latin America stock funds to 10.53% for large-cap growth stocks, according to Aug. 28 data from Morningstar.
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).
Like equity funds, there are a range of bonds with varying degrees of risk. Over the past five years, the average bond mutual fund return ranged by category from minus-0.9% for emerging-markets local-currency bond funds to 6.7% for long-term government bonds, according to Morningstar.
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 — somewhere between 1% and 3% a year. (Learn more about money market funds.)
Focus on what matters
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. 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, plus annual check-ins to fine-tune your investment mix.