Best-Performing Mutual Funds of December 2024

Best Mutual Funds of 2024

The best mutual funds have low costs, solid five-year returns and low minimum balance requirements. You should also look for opportunities to diversify your investments among different asset classes, industries and regions. Here are the 10 best-performing mutual funds of 2024.

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What Is a Mutual Fund?

A mutual fund pools your money with other investors to buy stocks, bonds and other investments. These funds are run by money managers who decide which securities to invest in or sell. 

Your returns are based on the fund’s performance minus any expenses or fees. These funds make money by charging investors a percentage of the assets under management. They may also charge a transaction fee when you purchase or redeem the fund. 

When you invest in a mutual fund, you’ll gain exposure to a wide variety of investments so it’s a more diversified holding. For example, you can invest in domestic or foreign stocks, bonds and commodities. 

Some mutual funds are actively managed and try to beat the market—these funds are usually run by portfolio managers and tend to be more expensive. However, mutual funds can also be passively managed as index funds. These funds attempt to track a market index, like the S&P 500. 

Types of Mutual Funds

There are many different types of mutual funds, but most fall into one of four broad categories—equity funds, fixed-income funds, index funds and money market funds. Here is an overview of each and who each type is best for.

• Equity funds: These funds invest primarily in stocks, and depending on the purpose of the fund, may invest in domestic or international companies. Some funds focus on companies offering dividends, while others focus on company size or sector. Domestic equity funds tend to be one of the most popular choices for long-term investors. 
• Fixed-income funds: Fixed-income funds pay a fixed rate of return and typically invest in bonds or other debt securities. These investments pay fixed interest or dividends until the maturity date. At that point, you’ll be repaid your principal investment. Government and corporate bonds are the most popular type of fixed-income fund, but these funds can also invest in Treasury bills, Treasury Inflation-Protected Securities (TIPS) and junk bonds.  
• Index funds: Index funds attempt to mirror the performance of a market index—they attempt to match the index’s holdings, activity and returns. Index funds are passive investments and don’t require a fund manager to choose which securities to invest in. The most popular market indexes to track are the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite. 
• Money market funds: Money market funds are best for investors looking for stable income at very little risk. These funds invest in short-term, high-quality securities from the government, banks or corporations. You may be able to get started with no minimum investment, and there aren’t usually any transaction fees to buy or sell the fund.  

How Do Mutual Funds Work? Can I Lose Money With a Mutual Fund?

Mutual funds are a largely hands-off way to invest in many different assets at once. Within just one fund, you’ll gain exposure to hundreds of stocks or bonds. There are three primary ways you’ll earn money from a mutual fund:

• Dividend payments: Some funds earn income from dividends on stocks or interest on bonds. The fund then pays these dividends to its investors minus any expenses. Dividend payments can be an excellent recurring source of income.
• Capital gains distributions: If the price of a security increases and the fund sells that security at a gain, the fund passes on these capital gains to investors at the end of the year.
• Increased NAV: If the market value of the portfolio increases, then the fund’s value and its shares increase. A higher net asset value means you have a higher value on your investment. 

However, every fund comes with some level of risk, and you can lose money if the securities held decrease in value. Plus, just because a fund has performed well in the past doesn’t mean this growth will continue in the future. 

Why Would You Need a Mutual Fund?

Mutual funds are a popular investment option, with over half of all U.S. households owning mutual funds. They may be the right choice for you, particularly if you have a long investment timeline. Here are some of the top reasons you should consider investing in mutual funds:

• Diversification: Mutual funds pool money from multiple investors and allow you to invest in a wide variety of securities. You could gain exposure to stocks, bonds, index funds and money market funds. This helps diversify your investment—if one asset decreases in value, you can make up for those losses in other areas. 
• Hands-off investing strategy: Mutual funds can be either passively or actively managed. Some funds passively track a stock market index, while others are handled by a portfolio manager. Either way, you won’t be responsible for researching and analyzing stocks and bonds on your own. 
• Long-term returns: Mutual funds are best for investors looking for a long-term investment strategy. The best mutual funds can return between 10% to 12% over an average year. Many of the best-performing mutual funds track the S&P 500.
• Convenience: Mutual funds are easy to invest in, and you can hold them in several different accounts. For example, you can open a brokerage account on your own or use an employer-sponsored retirement account. And you can automatically reinvest your dividends and capital gains distributions. 
• Low fees: Many mutual funds have low expense ratios and don’t charge any transaction fees. For example, a 0.04% expense ratio means you’ll pay just $4 for every $10,000 invested. You may even be able to find mutual funds with no expense ratio. 

How to Choose the Best Mutual Funds

Before investing in mutual funds, you should take time to consider your investment goals. What is your investing timeline, and what kind of returns are you looking for? This will help you determine your level of risk tolerance and can help you identify the right mutual fund category. 

Once you’re clear on your expectations, you can begin researching different funds. The following six factors will help you choose the best mutual fund.

Minimum Investment

Some mutual funds will let you buy in with no minimum investment, so you can get started with any amount you choose. However, many do require a minimum investment ranging from a few hundred to a few thousand dollars.

Figure out how much you have to invest, and then look for funds that meet your needs. For example, Fidelity mutual funds are a great option for anyone looking to avoid a minimum investment. 

Fees

According to the SEC, even minor differences in fees between funds can make a substantial difference over time. Mutual fund fees generally fall into two different categories—annual operating expenses and shareholder fees. 

Annual operating expenses can range between 0.25% and 1% of your annual investment. It covers things like management fees, marketing fees and administrative costs.

Shareholder fees include commissions for buying or selling shares, an exchange fee or an account fee. You can find any details about fees the fund charges on its prospectus. 

Management Style

You also want to consider whether the fund is actively or passively managed. Passively managed funds are usually index funds, while active funds have a portfolio manager. Actively managed funds do tend to come with higher fees.

“If you’re new to investing, you may want to look for a passive mutual fund. Passive funds are a good way to keep your costs low and minimize your tax liability.”

— Jamie Johnson

If the fund is actively managed, spend some time researching the fund manager’s experience. Check out their qualifications, what funds they’ve managed in the past and how those funds have performed. 

Assets Under Management

Assets under management (AUM) refers to the total assets being managed by the fund. A large AUM means it’s a larger fund and that there are probably more investors involved. A fund with a large AUM is in a stronger financial position, but it’s also less flexible whereas a fund with a smaller AUM is more flexible and may yield higher returns.

Fund Performance

Before investing in a mutual fund, check out the fund’s performance over the last three to 10 years. Compare the fund’s performance against the benchmark and how consistently the fund has tracked or surpassed it. 

It’s also helpful to look at similar types of funds to see how they match up. For example, if you’re considering investing in a large-cap fund, consider similar large-cap funds to see how they compare. 

Net Asset Value

The net asset value (NAV) represents the fund’s per-share value and is a key metric many investors track. Funds with a high NAV are more expensive to invest in and may offer fewer growth opportunities. However, these funds also tend to invest in high-quality stocks and bonds and provide more reliable returns over time.  

How to Invest in Mutual Funds

Here is a step-by-step guide to investing in mutual funds. 

Choose an Account Type

There are several different account types you can choose from, and the one you select will depend on your goals and preferences. An online brokerage account is the simplest option—this is a platform that lets you buy and sell investments. Fidelity, Vanguard and Charles Schwab are a few of the best online brokerage accounts available. 

If your main investing goal is to save for retirement, you may choose to open a 401(k), IRA or Roth IRA. If your employer offers a 401(k) as part of their benefits package, there’s a good chance you’re already enrolled. 

You can also choose to work with a financial advisor who will manage your portfolio for you. If you’re considering using a financial advisor, just make sure you know how you’ll be paying for their services. Some financial advisors charge fees, while others earn commissions. 

Choose Your Asset Mix

Next, you’ll decide what percentage of your portfolio will go toward stock, bonds or other investments. This is a highly personal choice and mostly depends on your risk tolerance and retirement goals.

In general, the longer you have to invest, the more aggressive you can afford to be. Someone in their 20s or 30s may choose a stock-heavy portfolio, while someone who’s close to retirement might invest more heavily in bonds. 

Open an Investing Account

Once you’ve chosen how you’ll manage the fund, it’s time to open an investment account. If you’re using an employer-sponsored 401(k), you’ll need to find out if you’re already enrolled in the plan. If not, you can contact your HR department to get your account set up and choose what percentage of your paycheck to automatically contribute.

If you’re using an online brokerage, you’ll start by filling out an application and providing some basic information, like your Social Security number, birthdate and employment history. If you already have a specific mutual fund in mind, it may make sense to open a brokerage account with that company. For example, if you’re a fan of Vanguard funds, it makes sense to open a brokerage account with Vanguard. 

Continue to Manage Your Portfolio

Once you’ve opened your investment account and chosen your mutual funds, you’ll continue to monitor your portfolio over time. It’s a good idea to rebalance your portfolio every year to ensure it stays diversified. For example, if a certain investment experiences large gains and accounts for a heavy portion of your portfolio, you may want to sell some of the gains and reinvest the funds somewhere else. 

Mutual Funds vs. ETFs

An exchange-traded fund (ETF) is a bundle of assets you can buy or sell during market hours. ETFs typically hold a collection of stocks, bonds or other securities. Most ETFs are passively managed and don’t require an initial minimum investment.

In comparison, mutual funds can be actively or passively managed, while ETFs are usually passively managed. Some mutual funds don’t require a minimum investment, but many do—the minimum investment can range from $500 to $5,000 or more.

Mutual Funds vs. Index Funds

An index fund is an investment that attempts to track the performance of a market index. It gives you exposure to a variety of companies without having to research all of them yourself. And if the market grows, your investment is likely to grow as well.

Most index funds are a type of mutual fund, but not all mutual funds are index funds. The main difference between the two is that index funds are passively managed and tend to come with lower advisory fees. Mutual funds can be passively or actively managed.

Mutual Funds vs. Stocks 

Stocks represent shares of ownership in individual companies. So if you buy shares of Amazon and the stock does well, the stock price will go up, and you can choose to either hold your shares or sell them at a profit. 

However, a mutual fund is a pooled investment containing shares of many different assets. Mutual funds provide more diversification since your investment isn’t tied up in only one company.

Mutual Funds vs. Bonds

Individual bonds pay semiannual interest payments and have fixed principal values that are repaid at maturity. The price of a bond can fluctuate depending on the current interest rates—when interest rates rise, bond prices tend to fall and vice versa. 

Bonds do provide a reliable stream of income, but it takes time to research and come up with an investing strategy for individual bonds. One alternative is to invest in a bond fund, which is a mutual fund that holds a variety of bonds with different maturity dates, issuers and credit ratings. This gives you greater diversification and access to professional management.