How many top 10 mutual funds are in your 401(k) plan?

By Robert C. Lawton August 07, 2018, 2:00 p.m. EDT 2 Min Read

Do you ever wonder if the investment funds in your 401(k) plan are some of the very best? If employees are doing their part and saving as much as they can, shouldn't they have access to above average investment funds to grow your savings as much as possible?

How can a plan sponsor or administrator tell which funds are the best?

Editors Lee Conrad and Andrew Shilling recently published their list of the top mutual funds in Financial Planning. Here's how they determined which funds were the best.

Evaluation criteria

To develop their pool of candidates, Financial Planning began by looking at the 20 largest mutual funds as measured by assets. Many believe that asset size is an excellent indicator of fund quality. It takes consistently good performance over time to build the amount of assets that the 20 largest mutual funds have accumulated.

But other factors besides solid performance have drawn investors to these funds. Each fund offers an appealing combination of risk, stable management and reasonable cost. And because their performance is consistently good, few investors flee these funds when markets fall.

stock-market-worried-nyse — A trader walks past the board while working on the floor of the New York Stock Exchange in New York, U.S., on Tuesday, May 25, 2010. Stocks plunged from Tokyo to London and New York, dragging the MSCI World Index to a nine-month low, and commodities slid as concern grew that SpainÕs ailing banks signal a widening debt crisis and as tension mounted on the Korean peninsula. The German bund yield fell to its lowest since at least 1990. Photographer: Jin Lee/Bloomberg

After determining the 20 largest funds, Financial Planning ranked each fund based upon performance. They felt that longer-term performance was more meaningful than short-term. As a result, they used a five-year period to rank the mutual funds under consideration.

The top 10 funds

All of the top 10 mutual funds come from just three fund families: American Funds, Fidelity and Vanguard. Half of the top 10 are from American Funds. Six of the 10 and three of the top four are actively managed. This may surprise those who think that index funds are the only way to invest.

Here is Financial Planning’s top 10 list, in reverse order, with the associated five-year returns:

10. American Funds Capital World Growth & Income Fund: 10.80%

9. Vanguard Small Cap Index Fund: 12.92%

8. American Funds Washington Mutual Investors Fund: 14.36%

7. Vanguard Total Stock Market Index Fund: 14.67%

6. American Funds Investment Company of America Fund: 14.71%

5. Vanguard 500 Index Fund: 15.01%

4. American Funds Fundamental Investors Fund: 15.03%

3. Fidelity 500 Index Fund: 15.07%

2. American Funds Growth Fund of America: 16.15%

1. Fidelity Contrafund: 16.85%

It is hard to imagine that a plan sponsor or administrator wouldn't have a number of these funds in their 401(k) plan. If you don't have any, e-mail the link to this piece to the human resources and employee benefits person in charge of your plan. Your fund lineup needs to be improved.

Robert C. Lawton

President, Lawton Retirement Plan Consultants