10 Best-Performing 401(k) Funds

401(k) funds help investors save for retirement.

The 401(k) might be the best wealth-building tool for retirement ever created. This type of account reduces taxes in the year the contribution is made and every year thereafter until the funds are gradually withdrawn during retirement. Couple the ongoing tax savings with the best 401(k) funds, and average investors can find a path to financial security. When it comes to options, a company's provider determines what 401(k) mutual funds are available. So if one of the best-performing funds isn't included in your plan, try to find a comparable substitute. Here are 10 of the top funds to include in your 401(k).

VY T. Rowe Price Capital Appreciation Portfolio (ticker: VPRAX)

Daniel Hawley, president and chief investment officer of Hawley Advisors, is a fan of asset-allocation funds that are common in many 401(k) plans. This type of fund holds a diversified portfolio of investments across different asset classes, and usually allocates 50% to 70% to equity holdings. Hawley calls himself a "big fan" of T. Rowe Price funds, saying the firm has "probably the greatest concentration of high-performing funds of any of the fund families." One of his favorites is VPRAX, noting the fund outperformed its peers in both the short term and long term, according to Morningstar, and has a 15.4% annualized return over five years. He often likes to pair it with a more-aggressive equity fund to boost growth.

American Funds American Balanced Fund (RLBFX)

RLBFX is another asset allocation fund found in many 401(k) plans. Hawley says American Funds suit cautious investors. "Their investment style is you can count on them to never lose big money in downturns. By their very nature, they tend to be conservative, but you also give up some upside return by concentrating on a conservative style," Hawley says. Over five years, it's returned an annualized 12%. The fund holds many of the top names that have driven returns lately, such as Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN), but at lower weights than its peers.

Vanguard U.S. Growth Portfolio (VWUSX)

Vanguard is known for its low-cost funds, and VWUSX is no exception with its expense ratio of 0.38%. That means it costs $38 for every $10,000 invested per year. Steve Azoury, founder of Azoury Financial, calls VWUSX "probably Vanguard's best growth fund." It has $55 billion in assets. In the last three, five and 10 years it has ranked in the top 10% of growth funds, according to Morningstar, with a 10-year annualized return of 20%. As a domestic, large-cap fund, its holdings include Shopify Inc. (SHOP), Netflix Inc. (NFLX) and PayPal Holdings Inc. (PYPL), and the top 10 holdings make up 36% of the fund so it's not top-heavy in its biggest names.

T. Rowe Price Blue Chip Growth Fund (TRBCX)

Azoury's second choice for a 401(k) fund is TRBCX. "It's a very consistent fund that has outperformed its benchmark for 25 years," he says. The fund has a mix of aggressive and steadily growing companies, but seeks out high-quality companies, too, as a blue-chip fund. Among some of the top holdings are Apple Inc. (AAPL) and Microsoft. TRBCX has an expense ratio of 0.68% and a low turnover rate of 29%, which represents the percentage of the fund's holdings that changed over the past year. This fund is up 22.8% year to date and has a 15-year annualized return of 13.6%. This fund has $109 billion in assets.

BlackRock Health Sciences Opportunities Portfolio (SHSSX)

Dwain Phelps, CEO and owner of Phelps Financial, is a fan of BlackRock funds, which are becoming more of an option in some 401(k) funds. One of his choices is SHSSX, which he says has had good long-term performance with an annualized 18.2% return over 10 years. SHSSX is a large-cap blend fund that focuses on the health sector and is spread out between health care equipment and supplies, pharmaceuticals, health care providers and biotechnology. "Health care is huge," he says. Some of the top holdings include UnitedHealth Group Inc. (UNH), Pfizer Inc. (PFE) and Medtronic PLC (MDT). The lead manager Frau Erin Xie has been with the fund since 2003.

Fidelity Advisor Growth Opportunities Fund (FAGAX)

This large-growth fund has consistently delivered results over time, as FAGAX's annualized 10-year return is 23.2%, putting it in the top 2% of its large-growth peers, according to Morningstar. "The money manager, Kyle Weaver, always seems to hit the hot stocks," says Azoury. He says the fund's 47% turnover suggests Weaver and his team are managing the account well. The fund has a heavy domestic tilt, but it also has a little more than 10% in foreign equity. Currently, FAGAX is overweight in technology and communication services. Many of the usual large-cap names are in the top 10, although Salesforce.com Inc. (CRM) and Uber Technologies Inc. (UBER) also round out the biggest holdings. "The fund has been terrific," he says.

BlackRock Capital Appreciation Fund (MAFGX)

This large-cap fund has a growth tilt and its top holdings are among some of the names that have driven great returns lately, such as Microsoft, Amazon and Apple. This fund holds "companies where people are constantly buying their stuff, and going to continue to buy their stuff," Phelps says. MAFGX has a low turnover of 25%, which helps to keep the costs down. The annual expense ratio is 0.72%, and the fund has returned 26% annually over a five-year period. Tech is the fund's largest exposure, although it is overweight in communication services, at 19.3%, and consumer cyclical at 18.7%. "If you can find BlackRock Capital Appreciation fund, I think it's going to perform well for you," he says.

Vanguard 500 Index Fund (VFIAX)

Brian Stivers, president and founder of Stivers Financial, says he recommends that clients with 401(k)s start with an S&P 500 index fund, which allows broad, large-cap market exposure. He likes index funds particularly for clients who are not going to be actively reviewing their accounts. Index funds are also very cheap, which matters for long-term holdings. One he likes is VFIAX, a large-cap blend, with an expense ratio of 0.04%. "It's very cheap; it's almost free," he says. The index includes 500 of the largest U.S. stocks that make it through the asset manager's screen for market cap, liquidity and profitability, which gives the fund a slight quality tilt. The fund has a 15-year annualized return of 10.6%.

Vanguard Small-Cap Growth Index Fund (VSGAX)

Stivers likes to pair a large-cap growth index fund with a small-cap growth index fund. VSGAX is his choice. The fund has a low expense ratio of 0.07% and tracks the CRSP U.S. Small Cap Growth Index. This index features the faster-growing half of the broad small-cap market. VSGAX's five-year annualized return is 18.8%. "I tend to like growth over value for the average investor. I think in the long run, growth tends to outperform," he says. Small-cap index funds such as VSGAX tend to have more of the technology stocks that trade on the Nasdaq, he notes. Investors should allocate assets to large-cap and small-cap index funds in ways that match their risk tolerances.

BlackRock High Yield Bond Fund Portfolio (BRHYX)

Investors with 10 or more years left before retirement can put a small amount of money toward riskier investments, including high-yield bond funds. One example is BRHYX. High-yield debt is also called "junk" debt because of its lower credit rating. This BlackRock fund also includes bank loans and investment-grade corporate bonds to manage the risk. It has a 4.87% 12-month yield and a low fee of 0.51%. Phelps points out that Morningstar gives this fund a high rating, which is notable for a high-yield fund that is still on the conservative side. BRHYX has beaten its index, the ICE BofA U.S. High Yield Index, over a 15-year period.

Here are 10 of the best 401(k) funds:

-- VY T. Rowe Price Capital Appreciation Portfolio (VPRAX)

-- American Funds American Balanced Fund (RLBFX)

-- Vanguard U.S. Growth Portfolio (VWUSX)

-- T. Rowe Price Blue Chip Growth Fund (TRBCX)

-- BlackRock Health Sciences Opportunities Portfolio (SHSSX)

-- Fidelity Advisor Growth Opportunities Fund (FAGAX)

-- BlackRock Capital Appreciation Fund (MAFGX)

-- Vanguard 500 Index Fund (VFIAX)

-- Vanguard Small-Cap Growth Index Fund (VSGAX)

-- BlackRock High Yield Bond Fund Portfolio (BRHYX)