Roth IRAs are tax-advantaged retirement savings accounts that can be funded with a wide range of investment options. Most people putting money away for retirement will wish to have a mix of stock and bond holdings in their long-term, buy-and-hold investment portfolio. Simply purchasing an index fund that invests in stocks and bonds is sufficient.
The following analysis will focus on the top mutual funds for Roth IRAs, all chosen from the index funds available on Morningstar's website. All of the funds on the list share a few essential characteristics:
- Ready to accept fresh capital
- Have more than $50 million in assets under management (AUM) and a minimum investment of $1,000
- Zero fund-related costs
1. Vanguard Target Retirement 2060 Fund (VTTSX)
One of the best vanguard funds to hold in a roth ira. With retirement in mind, investments in a Roth IRA should be held for the long term because withdrawals are only permitted after age 59 1/2 without incurring a penalty. A target-date fund is a terrific option since it helps investors simplify their portfolios while meeting their needs.
Target-date funds are favored by Running Point Capital's partner and chief investment officer, Michael Ashley Schulman, because they allow investors to make their portfolio rebalancing happen automatically. "As your retirement or withdrawal date approaches, the asset allocation of these funds will gradually shift to become more conservative," he explains.
VTTSX, which maintains a globally diversified portfolio of roughly 90% equities and 10% bonds, is an appropriate target-date fund for investors in their mid-20s who plan to retire around 2060. Those interested in contributing at least $1,000 are subject to the fund's 0.08% annual expense ratio.
2. Fidelity ZERO Total Market Index (FZROX)
If you are looking for a low-cost mutual fund that invests in U.S. stocks, go as far as FZROX because its classification as a whole market fund attempts to mimic the performance of all equity market segments, including smaller and medium-sized companies. Capitalization-weighted total market funds, however, still largely consist of large-cap equities because of the larger weight given to them.
Total market funds, including large and small companies, tend to be more volatile and produce higher returns than large-company index funds. The Fidelity ZERO Large Cap Index (FNILX) fund, which charges no management fees yet follows large-cap equities, may appeal to less-intrepid investors who prefer lower levels of volatility.
The underlying index for FZROX is the float-adjusted market capitalization-weighted Fidelity U.S. Total Investable Market Index, which aims to replicate the performance of the entire U.S. equities market. Although it is based on widely-used indicators like the S&P 500 and the Dow Jones U.S. Total Stock Market Index, Fidelity's index differs significantly from these popular measures.
Market performance is generally similar between the Fidelity proprietary index, Dow, and S&P 500. The Fidelity Total Market Index (FSKAX) fund and the Fidelity 500 Index (FXAIX) fund are two options for investors wary of the Fidelity index due to methodological concerns. These funds follow the Dow Jones U.S. Total Stock Market Index and the Standard & Poor's 500 Index. As of the end of 2021, FZROX consists of 2,631 individual holdings.
Large-cap equities account for over 90% of the fund's total assets, making up most of its holdings. Mid-cap stocks account for about 8%, with tiny and micro-cap companies making up the balance. The average market value of the portfolio is $20.5 billion.
Louis Bottari is the fund's primary portfolio manager, and Robert Regan is the co-manager. Since the fund's establishment in August 2018, they have served as its managers.
3. Boston Trust Walden Small Cap Fund (BOSOX)
For a Boston-based investment management firm, The Boston Trust Walden Small Cap Fund's ticker, MUTF: BOSOX, is quite fitting. You must agree, even though I root for the Blue Jays.
On December 31, 1994, the fund was officially established. As of June 30, its performance compared to the Russell 2000 index was 10.62%, an increase of 195%. It has amassed $986.3M in net assets over 28 years.
Like the Russell 2000, the fund puts its money into companies with a market size of $32 million to $33 billion. The top 10 holdings comprised 21.6% of the total as of June 30. Two well-known companies, Flowers Foods (NYSE: FLO) and Chemed (NYSE: CHE), can be included in the top 10. The four most heavily represented sectors are healthcare, manufacturing, technology, and discretionary spending.
Kenneth Scott, co-CEO of Boston Walden and an investor since 1991, oversees the fund's three portfolio managers. Scott has been with Boston Walden since 1999. The U.S. Trust Company of Boston founded Boston Walden in 1974 as its investment and trust business. In 1995, it introduced its first mutual fund to investors. In 2004, the company was bought out by its employees. Since then, it has stayed the same.
