Best Safe Mutual Funds

Mutual funds typically give the public access to professionally managed stock and bond market investments, although they can also invest in other assets and commodities. These features have helped make the best safe mutual funds a popular investment, especially for people looking to put money away for their retirement in self-directed IRAs and employer-sponsored 401(K) plans. 

Mutual fund investing lets you buy a diversified group of assets in a single fund, often for a very reasonable management cost. Through this, you can build a diversified mutual fund portfolio easily, quickly and cheaply. While not all mutual funds are created equal, keep reading to find out the best safe mutual funds to invest in.  

Quick Look at the Best Safe Mutual Funds:

• Fidelity 500 Index Fund (FXAIX)
• Schwab Fundamental US Large Company Index Fund (SFLNX)
• Fidelity NASDAQ Composite Index (FNCMX)
• Voya Russell Large Cap Index Portfolio 1 (IIRLX)
• Invesco Small Cap Value Fund (VSCAX)

The Best Safe Mutual Funds

Portfolio safety ranks high in priority for most investors. For many people, investing safely means beating inflation and producing a return that equals or improves upon the stock market’s return over time. Since picking the safest mutual funds will usually make the most sense for an investment portfolio, you’ll want to check out Benzinga’s top five safe picks for your mutual fund portfolio ranked below.  

1. Fidelity 500 Index Fund (FXAIX)

The Fidelity 500 Index fund is one of the best and cheapest ways to invest in U.S. large-capitalization stocks. The Fidelity 500 Index fund has an annual performance of +14.5% over the last 5 years and boasts an unusually low expense ratio of just 0.015%.

This mutual fund tracks the S&P 500 index, representing the largest capitalization stocks traded in the U.S. stock market. It does so by investing in the 500 stocks that fulfill the investment criteria of the Standard and Poor's committee that manages the index. 

This index committee regularly removes and replaces the stocks of companies that no longer meet its stringent requirements of profitability and liquidity to improve the index’s risk profile. The index committee also weighs each stock component according to its market capitalization.

This fund has relatively low costs because it closely tracks the index that S&P researches and manages. The fund also has a low level of unnecessary turnover and offers good diversification for your portfolio. 

2. Schwab Fundamental US Large Company Index Fund (SFLNX)

The Schwab Fundamental US Large Company Index fund is a fund that invests in large companies and fully replicates the Russell RAFI US Large Company Index. It can offer benefits to investors seeking to profit from a long-term contrarian strategy. The SFLNX fund has returned an average of +14.1% over the last five years and has an expense ratio of 0.36%.

Using the Russell RAFI Index as a model, the benchmark weighs components by a combination of fundamental metrics that break the correlation between the stocks’ prices and their weight in the portfolio. When a rebalancing of the index occurs every year, the fund basically doubles up on stocks that have underperformed, while paring down its holdings of stocks that have increased in value. 

This adjustment method relies on a mean reversion strategy, but it can burden the fund with fundamentally weaker stocks and can prematurely remove known winners. While the fund showed a rather lackluster performance in the 2010s, the mean reversion period resulting from the COVID-19 pandemic saw the fund appreciate respectably in 2020. 

3. Fidelity NASDAQ Composite Index (FNCMX)

The Fidelity NASDAQ Composite Index fund invests more than 80% of its assets in the common stocks included in the NASDAQ composite index, and it has an expense ratio of 0.29%. The fund’s performance has declined this year because of market volatility, although its historical performance over the last five years was +17.2%, and it returned 16.5% over a 10-year period.

The fund invests in stocks by considering factors such as a stock’s price-earnings (PE) ratio, dividend yield, price-to-book (PB) ratio and earnings growth to select equities from the index that reflect similar values to the index itself. Since the smaller cap stocks quoted on the Nasdaq exchange tend to be more volatile than large-cap stocks, this fund caters to investors with a higher risk tolerance than Benzinga’s previous fund selections. 

4. Voya Russell Large Cap Index Portfolio 1 (IIRLX)

The Voya Russell Large Cap Index Portfolio 1 fund invests over 80% of its assets in the stocks of companies included in the index at the time of purchase, and it currently has an expense ratio of 0.43%. The IIRLX fund has averaged a return of +19.1% over the last five years and a return of +16.5% over the last 10 years.

This fund also invests in convertible securities, such as options and warrants that convert to stocks in the index, as well as in derivatives and exchange-traded funds (ETFs) that closely reflect equivalent returns of the index or its major components.  

5. Invesco Small Cap Value Fund (VSCAX)

For investors with higher risk tolerance, the Invesco Small Cap Value fund generally invests in cheaper share classes.  VSCAX has a 5-year annual return of 11.21% and an expense ratio of 0.74%.

The fund’s investment strategy is run by three analysts who use an aggressive deep value approach to their stock selections, aiming for a 50% return within three years on their picks. Also, more than 50% of the fund’s portfolio is invested in cyclical stocks like industrials and consumer discretionary stocks. 

Since 2012, the fund has shown a rather low annual turnover rate considering the share class of the fund of between 28% and 50%. The fund managers mitigate exposure to increased volatility by using conservative estimates and placing their emphasis on cash generation. 

What is a Mutual Fund?

A mutual fund generally consists of a pool of money that is invested in a variety of valuable assets, such as stocks, equities, bonds and commodities. A mutual fund’s portfolio of assets is then managed by a professional fund manager or team of managers for a fee.

The fund manager’s portfolio management role includes the acquisition of assets, rebalancing asset positions, developing an asset allocation strategy and taking into account stock dividend payments and bond coupons.

As an investor, you can select your ideal mutual fund based on your risk appetite, the financial strategies a fund uses, the assets a fund invests in and the likely return on your investment within a given time frame. 

What to Look for in a Mutual Fund

With the thousands of choices available to investors in the mutual fund market, you need to first assess your financial objectives to select the right mutual funds to meet your investment goals. For example, you should be clear on whether you’re looking for recurring income in the short-term or long-term capital gains.  

• Long or short-term returns: If you’re looking to invest for your retirement and plan to buy mutual funds for your 401(K) account, then the type of mutual fund you select to invest in should be expected to perform well over the time frame remaining until you retire. On the other hand, if you prefer to receive a steady income from your investments starting now, then a mutual fund that invests in dividend stocks would probably be a better fit for you.

• Expense ratio: This ratio represents the amount of money the fund uses to accumulate and manage its assets. This includes a management fee you pay to have a professional money manager trade stocks, bonds and other assets for the mutual fund. Expense ratios vary widely among mutual funds, with some easy-to-manage funds having expense ratios as low as 0.015%, while most should have expense ratios of less than 1%. 

• Risk tolerance: Once you’ve established whether to invest for the short- or long-term, you would be wise to determine how tolerant you are to risk when it comes to potentially losing your investable funds. Would you be comfortable watching the value of the mutual fund swing in value over the near term to achieve superior returns over time, or would you rather invest in a mutual fund that appreciates gradually and provides a reliable source of income? The more risk you’re willing to take, the higher your rate of return (or loss) could be. One way to determine your risk tolerance is to estimate the rate of return you expect relative to the level of market volatility you can live with. Once you decide how much risk you’re comfortable with, you can then start researching and selecting mutual fund investments for your portfolio based on your risk tolerance. 

• Fund management: Make sure you check out the fund’s management team and its stability. Does their track record show a history of steady positive returns with low staff turnover? Also determine if the fund has a high transaction rate for its investments that can create taxable events that might affect your bottom line unless you hold the fund in a tax-deferred account.  

How Will Mutual Funds Impact Your Portfolio?

Investing in mutual funds will undoubtedly have an effect on your portfolio, especially if you select funds that contrast with your existing investment holdings. Depending on which mutual funds you select, you might note the following effects on your portfolio:

• Reduced risk: Investing in mutual funds typically diversifies your portfolio, which means it incurs less risk overall. Most mutual funds invest in as many as 100 different stocks, while some index funds can hold thousands of different stocks in their portfolio.
   
• Price stability: Mutual funds generally trade only once per day at a price determined by the net asset value (NAV) of the fund, so you can worry less about intra-day valuation swings. This feature generally makes the fund fairly priced and avoids arbitrage situations that might arise if the fund was more actively traded.
  
• Dividend payments and reinvestment: As the fund acquires dividends from its stock holdings, these dividends can either be reinvested into more shares or distributed to the fund’s shareholders. 
  
• Capital gains distribution: Mutual funds sometimes sell assets after the fund has appreciated over a period of time. These sales generate capital gains that the fund distributes at the end of its fiscal year, which can have tax implications.
  
• Appreciation: When shares of the companies held by the mutual fund increase in value, the NAV of the fund goes up. The increase in the value of the fund shares you own will also boost your portfolio’s value. 

Compare Online Brokers for Mutual Funds

While some mutual funds can be purchased directly, such as those from Fidelity or Vanguard, you’ll probably need the services of a good stock broker to buy shares in your preferred mutual fund. Benzinga has compiled the list below for comparison purposes of some of the top brokerages for you to purchase your mutual funds through.  

Frequently Asked Questions