Sometimes, plain vanilla ice cream is the best flavor to buy. That goes for investing, too. Although we talk a lot about buying individual stocks here at InvestorPlace, buying mutual funds is the way to go for many investors, particularly those just starting their investing journey.
That’s because mutual funds give you instant diversification. They typically hold dozens, if not hundreds of stocks, often across many industries. For one low price, you can own stocks that would cost tens of thousands of dollars to buy individually.
However, not all mutual funds are equal. Some fund managers will charge you a lot of money to manage the portfolios. That’s why you should look for mutual fund families — money managers who offer a lot of mutual funds — with low expense ratios. They are not going to nickel and dime your portfolio to death (and typically it’s a lot more than nickels and dimes). You want as much of your money working for you.
Below are three of the best mutual funds to buy. They are among the lowest-cost mutual funds to own and have excellent track records compared to the benchmark S&P 500.
Fidelity Blue Chip Growth Fund (FBGRX)
10 Small-Cap Stocks to Buy Before They Grow Up
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Buying large-cap growth stocks is a favored strategy amongst investors. You are buying stakes in the biggest businesses that offer superior performance to their counterparts. That’s why the Fidelity Blue Chip Growth Fund (MUTF:FBGRX) is one of the best mutual funds to buy.
Fidelity is one of the leaders in low-cost investing. Almost all of its mutual funds have low expense ratios and the Blue Chip Growth Fund sports a 0.48% fee. Importantly, there is no minimum amount needed to begin investing. You can start with whatever money you have on hand. It has over $65.2 billion in portfolio net assets.
The fund seeks out blue chips, or what it considers “well-known, well-established and well-capitalized” companies with above-average growth potential. The Blue Chip Growth Fund’s top three holdings are Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). Of the 389 stocks in the portfolio, the trio accounts for a third of the total.
It is tech-heavy, but you also have significant positions in companies such as pharmaceutical giant Eli Lilly (NYSE:LLY) and Netflix (NASDAQ:NFLX).
The fund has handily outperformed the S&P 500 over the past decade, returning 378% for investors compared to 231% by the index. The Fidelity Blue Chip Growth Fund would be a great addition to anyone’s portfolio.
Fidelity Small Cap Index Fund (FSSNX)
small-cap stocks to buy
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At the other end of the spectrum is the Fidelity Small Cap Index Fund (MUTF:FSSNX). Small-cap stocks are historically a growth engine and, over extended periods of time, outperform the benchmark index.
For the past few years, however, small-caps have lagged because of the high interest rate environment. The Federal Reserve’s unprecedented ratcheting up interest rates 11 times over the course of a year raised borrowing costs for small companies. Since they don’t have the same access to financing as their larger brethren, a greater portion of their available cash goes toward financing debt. The Fidelity Small Cap Index Fund has returned 114% over the last 10 years.
But the market began rotating away from former high fliers into the small-cap sector last month. The Small Cap Index Fund is up almost 4% over that time frame versus a 4.5% decline by the S&P 500.
The top three holdings of the Fidelity mutual fund include Super Micro Computer (NASDAQ:SMCI), MicroStrategy (NASDAQ:MSTR) and Carvana (NYSE:CVNA). Look for small-caps to become ascendant, making the Fidelity Small Cap Index Fund one of the best mutual funds to buy today.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
The Standard & Poor's 500 is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. SPY stock follows the exchange.
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If mutual funds are the plain vanilla of investing, then the Vanguard 500 Index Fund Admiral Shares (MUTF:VFIAX) is the plainest of them all. As its name suggests, its job is to track the performance of the S&P 500. In fact, buying a fund that tracks the benchmark is all most investors need to do in their investing career.
Since its inception, the S&P 500 has grown at a compound annual growth rate of around 10.5%. While it has had up and down years, the average holds true over time. That means an investor can hope to double their money every seven years.
The Vanguard 500 Index Fund Admiral Shares was the very first mutual fund ever created for individual investors. It has an incredibly low expense ratio of 0.04%. There are no purchase fees, no redemption fees and no nasty 12b-1 fees, which is a fee many mutual funds charge to recoup their marketing expenses.
Since the fund matches the S&P 500, its top three stocks are Microsoft, Nvidia and Apple. But you also get the full breadth of the 500 stocks in the index. It is arguably the very best mutual fund to buy for most investors.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
