The best mutual funds to buy include a diverse range of categories, making them ideal for riding out volatility or a weak economy. Even amid a bear market for stocks, you can still take advantage of lower prices, while keeping a long-term outlook beyond the current year.
With this in mind, we take a look at six funds you should pay attention to.
How We Selected the Best Mutual Funds
Using a long-term investing philosophy, you can try to figure out which are the best mutual funds to buy and hold—now and for the next decade, and beyond.
Here’s how we chose the best funds to buy for 2021.
- Low expenses: When choosing the best funds to buy, no matter how long the holding period, its smart to choose among the best low-cost, “no-load” funds, sold without a commission or sales charge. This is important because keeping costs low is a central aspect of producing higher returns, especially in the long run.
- Diversification and balance of assets: Allocating a portfolio to multiple asset classes, including stocks, bonds, and cash, can help you protect yourself from the extremes of a bear market. At the same time, you can still maintain exposure for long-term gain. In short, keep in mind the risk and reward degree of investments. Stocks are higher-risk, but they hold a higher potential for long-term gain. On the other hand, bonds are lower-risk, but they offer less promise of long-term gain.
- Defensive sectors: Some sectors fare better than others during a weak economy. These sectors are called “defensive” because of this resilience during hard times. Defensive sectors include health care and consumer staples.
Its wise to plan for a weakening economy. To meet this challenge, youll want to create a well-diversified portfolio, made up of funds that avoid high-risk areas of the market, such as small-capitalization stocks and emerging markets. Instead, it should concentrate on lower-risk areas. These can include high-quality, large-cap U.S. stocks and certain bond funds.
You may want to choose balanced funds that invest in a combination of several types of securities.
With these current factors in mind, here are some of the best funds that have the potential to be leaders in the coming years.
Best Stock Mutual Funds for 2021
Well start our list of the best mutual funds with ones focused on stocks.
Vanguard 500 Index Fund Admiral Shares (VFIAX)
When building a portfolio of mutual funds, its good to start with a large-cap stock index fund as a core holding. This is because S&P 500 index funds, like VFIAX, invest in roughly 500 of the largest U.S. companies. This will help you build a foundation for your portfolio and provide you with diversification at the same time.
VFIAX has a low expense ratio of 0.04%, and an initial minimum purchase of $3,000.
Fidelity Select Consumer Staples Portfolio (FDFAX)
Stocks entered a bear market in March 2020. But dont jump all the way out of stocks, waiting for this major correction to come and go before getting back in. Instead, it may be a better idea to stay in stocks, but you can decrease the risk a bit by investing in defensive areas, such as consumer staples.
These are companies that sell products and services that consumers need regardless of economic conditions. In good times and in bad, we still need food, clothes, and health care.
The expense ratio for FDFAX is 0.75%, and there is no minimum initial purchase.
Vanguard Health Care Fund Investor Shares (VGHCX)
Like the staples listed above, people still need to buy their medicine and see the doctor during economic downturns. The health care sector includes pharmaceuticals, hospitals, medical devices, and other health products and services. Not only does health care make for a strong long-term holding, but it may prove to be a smart defensive move during market corrections.
Vanguard notes that the fund’s narrow scope, focused on one industry, makes it better suited to be complementary to an already diversified portfolio.
VGHCX has an expense ratio of just 0.32%, and there is a minimum initial purchase of $3,000.
Best Balanced Mutual Funds for 2021
If you want to take the one-fund approach, a smart way to do it is with balanced funds. Here are some of the best to consider for 2021.
Vanguard Balanced Index Fund Admiral Shares (VBIAX)
Stocks may outperform bonds in the long run, but a bear market for stocks will likely reverse that trend in 2021. VBIAX has an asset allocation of roughly 60% stocks and 40% bonds. This makes for a solid moderate allocation that should be able to stay ahead of inflation long-term while minimizing market risk in the short term.
The expense ratio for VBIAX is just 0.07%, and the minimum initial purchase amount is $3,000.
Hussman Strategic Total Return Fund (HSTRX)
If youre looking for a mutual fund that acts like a hedge fund, HSTRX is among the best you can find. The fund manager, perpetual market “bear” John Hussman, is known for predicting the 2008 market downturn. He also created a balance of assets to average inflation-beating returns while minimizing losses during market corrections.
HSTRX wont often lead the market on the upside, but its a good fund to hold when the economy again enters a recession. The expense ratio for HSTRX is 0.75%, and the minimum purchase is $1,000.
Best Bond Mutual Funds for 2021
With inflation low and interest rates falling, it may be wise to choose bond funds that are diversified.
Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX)
When interest rates are stable or falling, intermediate- and long-term bonds will most often rise in price more than short-term bonds. And after an unpredictable year like 2020, a diversified bond fund like VBTLX may be a good choice.
The expense ratio for VBTLX is quite low. at 0.05%, and the minimum initial purchase is $3,000.
A combination of several of the recommended funds on this list in one portfolio may make for a diversified mix.
The Bottom Line
After taking a look at some of the best mutual funds to buy in 2021, it’s important to keep some things in mind. Investing in just one fund, unless its a balanced fund, may not be enough to make your portfolio diverse.
Also, keep in mind that shrewd investors dont try to time the market by jumping in and out of investments in the short term. Instead, they will buy-and-hold for periods of more than one year. Market conditions arent easy to predict, especially in times of volatility.
The best funds to invest in are those that suit your tolerance for risk and help you meet your goals.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
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