10 Best-Performing 401(k) Funds

Debbie Carlson
·8 min read

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of account reduces taxes in the year the contribution is made and every year thereafter until the funds are gradually withdrawn during retirement.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).

Vanguard Total Stock Market Index Fund (ticker: VTSAX)

Todd Rosenbluth, head of exchange-traded fund and mutual fund research at CFRA Research, says as investors build out their 401(k) portfolio, they should consider having as broad an exposure as possible. "Having an S&P 500 or a total stock market index fund is extremely important to have as the base of your portfolio," he says. One great example is VTSAX, which gives holders exposure to the entire stock market in their retirement portfolio. VTSAX has an average annual return of 7% since its inception in 2000 and a one-year return of 10.2%. The annual expense ratio is also extremely low at 0.04%, or $4 for every $10,000 invested.

Fidelity Contrafund (FCNTX)

A popular 401(k) offering is FCNTX, an actively managed large-cap growth and value stock fund that focuses on generating capital gains rather than income. Kostya Etus, director of research at Orion Portfolio Solutions, says FCNTX is Fidelity's flagship fund. He notes the fund has been around for a long time and has had consistent performance. It's a huge fund, with around $130 billion in assets under management, and is heavily weighted in the information technology sector -- with Amazon.com (AMZN) and Facebook (FB) as its top positions. FCNTX is up 18.6% year to date and has a 15-year average annualized return of 11.4%. It also comes with a 0.85% expense ratio.

Fidelity Total Bond Fund (FTBFX)

In addition to a core stock market fund, Rosenbluth advocates that investors also choose a core bond fund. How much an investor allocates to a bond fund will depend on their age and estimated retirement date. In the current low interest rate environment, bonds act as a ballast to stock market volatility rather than providing income. Here, too, he suggests a broad-based bond fund. One example of a broad-based bond fund that has a slightly higher yield than U.S. Treasurys is FTBFX. The fund seeks to provide investors with high levels of current income and uses the Bloomberg Barclays U.S. Universal Bond Index to guide its allocation decisions and as a benchmark. It has a below-average fee of 0.45% and a 12-month yield of 2.53%.

JPMorgan Large Cap Growth Fund (OLGAX)

Steve Azoury, financial advisor and owner of Azoury Financial, considers OLGAX to be JPMorgan's best fund, and one that is usually widely available in a 401(k). "This would be my top choice if you have it available," Azoury says. It's an actively managed fund with a long-tenured manager. The fund also has a relatively low cost of 0.94% annually. Azoury points out the strong performance of this fund, which is up nearly 35% this year and is handily beating its category and index, the Russell 1000. It has a 15-year average annual return of more than 13%. "That return is really terrific," he says. OLGAX's top two sectors are technology and consumer cyclical stocks, with a large position in both Tesla (TSLA) and Mastercard (MA).

T. Rowe Price Blue Chip Growth Fund (TRBCX)

Azoury's second choice for a 401(k) fund is TRBCX. "This has been a good fund, very consistent for a very long period of time," he says. The fund has a mix of aggressive and steadily growing companies, and it has beaten the Russell 1000 over time, including outperforming the benchmark during the pandemic-fueled market sell-off earlier this year. As a blue-chip fund, TRBCX holds quality stocks such as Apple (AAPL) and Alibaba Group Holding (BABA). TRBCX has a below-average expense ratio of 0.69% and a low turnover rate of 32% -- which represents the percentage of the fund's holdings that changed over the past year. This fund is up 21.5% year to date and has a 15-year annualized return of 12.4%.

Vanguard Value Index Fund (VIVAX)

Although growth stocks have dominated the stock market for the past several years, value stocks have historically outperformed. This may help long-term investors, says Robert R. Johnson, professor of finance at Creighton University and co-author of the book, "Strategic Value Investing." "The main premise of value investing is a regression to the mean," he says, meaning that some stocks overshoot or undershoot their true value. One of his fund choices is VIVAX, which is one of the cheapest large-cap value funds available with an expense ratio of 0.17%. The fund targets slower-growing stocks, so it has less overlap with the growth side of the market. It's fitting that Berkshire Hathway (BRK.B) -- the investment vehicle of famous value investor Warren Buffett -- is the fund's top position.

Fidelity Large Cap Value Index Fund (FLCOX)

Another value fund Johnson likes is FLCOX. It's also a low-expense fund, with a 0.035% expense ratio, and comes with a 12-month dividend yield of 2.58%. This large-cap fund has a turnover rate of 27%. FLCOX is underweight on technology stocks, so it could be a counterweight to so many of the available growth funds that are heavier on the tech sector. "If the value school of investing does come back into favor," Johnson says, funds such as VIVAX and FLCOX "are poised to outperform." Going further, "since the funds would be held in a 401(k), there are no near-term adverse consequences from the higher-than-market dividend yields," he adds.

BlackRock High Yield Bond Fund (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, Rosenbluth says. One example is BRHYX. High-yield debt is also called "junk" debt because of its lower credit rating. This BlackRock fund includes bank loans and investment-grade corporate bonds to manage the risk. It has a 5.55% 12-month yield and a low fee of 0.51%. When choosing an actively managed fund, Rosenbluth says to look for consistency in returns "You don't want a manager that is up 25% one year and up 5% on a three-year basis because that means you would have lost money along the way," he says. "That consistency is going to help in the long term." BRHYX has beaten its index, the ICE BofA U.S. High Yield Index, over a 15-year period.

Fidelity Low-Priced Stock Fund (FLPSX)

Younger investors with a longer time horizon before retirement and investors with a higher risk tolerance should consider allocating part of their portfolio to small- and mid-cap stocks, says Amy Arnott, portfolio strategist at Morningstar. FLPSX is an actively managed mutual fund that has had very consistent performance over time, she adds. The fund primarily looks to invest in companies that are priced at or below $35 per share or with an earnings yield at or more than the median for the Russell 2000, an index for small-cap companies. FLPSX comes with an expense ratio of 0.78% and has a 10-year return of 9.32%.

American Funds EuroPacific Growth Fund (AEPGX)

This international fund invests in both developed and emerging markets that may benefit from innovation, global economic growth, consumer demand or a turnaround in conditions. Etus says while U.S. stocks have been powered by technology, there aren't as many international tech companies. Still, he says, this fund has attracted attention. "What American has done with this fund is they've actually tried to uncover the growth within international," he says. "They try to find the best growth opportunities. And that's really lifted performance for this fund." AEPGX has managers with long tenures, and it comes with an expense ratio of 0.84%. The fund's 15-year average annual return is 6.59%.

10 of the best 401(k) funds:

-- Vanguard Total Stock Market Index Fund (VTSAX)

-- Fidelity Contrafund (FCNTX)

-- Fidelity Total Bond Fund (FTBFX)

-- JPMorgan Large Cap Growth Fund (OLGAX)

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

-- Vanguard Value Index Fund (VIVAX)

-- Fidelity Large Cap Value Index Fund (FLCOX)

-- BlackRock High Yield Bond Fund (BRHYX)

-- Fidelity Low-Priced Stock Fund (FLPSX)

-- American Funds EuroPacific Growth Fund (AEPGX)