Best Mutual Funds for 2019 and 2020

See the Best Funds to End this Decade

Man looking at graph on computer
••• shironosov/iStock

The best mutual funds to buy for 2019 and 2020 will include a diverse range of categories ideal for volatility and a weakening economy. Smart investors don't try to time the market by jumping in and out of investments in the short-term but will instead employ a buy and hold strategy for periods of more than one year.

How We Selected the Best Mutual Funds for 2019 and 2020

With a long-term investing philosophy in mind, we can determine which are the best mutual funds to buy and hold for the next few years and beyond. When choosing the best funds to buy, no matter the duration of the holding period, investors are smart to choose among the best low-cost, no-load funds. This is because keeping costs low is a fundamental aspect of producing higher returns, especially in the long run.

With a recession possible in 2020 or in 2021, it's also wise for investors to plan for weakening economic conditions. This calls for a well-diversified portfolio, consisting of funds that avoid high risk areas of the market, such as small-cap stocks and emerging markets, and concentrate more on lower-risk areas, such as high-quality, large-cap U.S. stocks and certain bond funds. Some investors may also choose balanced funds that invest in a combination of these securities.

With that backdrop in mind, here are the best funds that have potential to be leaders in the coming years.

Best Mutual Funds for 2018 and 2019: Stock Funds

We'll start our list of best funds that focus on stocks:

  • Vanguard 500 Index (VFINX): When building a portfolio of mutual funds, it's good to start with large-cap stock index fund as a core holding. Total stock index funds are also good choices but for core holdings in 2019 and 2020, an index fund like VFINX will likely be better because total stock funds include small-cap stocks, which will likely see significant declines during a major correction that can occur during the three-year period. VFINX has a rock bottom expense ratio of 0.14 percent and an initial minimum purchase of $3,000.
  • Fidelity Select Consumer Staples (FDFAX): Stocks are overdue for a bear market but it's not smart to completely jump out of stocks and wait for the major correction to come and go before getting back in. Instead, it's smart to stay in stocks but just tap down the risk a bit by investing in defensive areas like consumer staples, which are companies that sell products and services that consumers still need, regardless of economic conditions. In good times and in bad, we still need food, clothes, and health care. The expense ratio for FDFAX is 0.77 percent and the minimum initial investment is $2,000.
  • Vanguard Health Care (VGHCX): Similar to consumer staples, people still need to buy their medicine and see the doctor during economic downturns. The health sector, which includes pharmaceuticals, hospitals, medical devices, and other health products and services, not only makes for a strong long-term holding but may prove to be a smart defensive move when the inevitable correction hits. VGHCX has an expense ratio of just 0.34 percent and a minimum initial investment of $3,000.

Best Balanced Funds for 2019 and 2020

If you want to take the one-fund approach, a smart way to do it is with balanced funds. Here are some of the best to consider for 2019 through 2020.

  • Vanguard Balanced (VBIAX): Stocks may continue to outperform bonds in 2019 and most of 2020 but a recession will likely reverse that trend. VBIAX has an asset allocation of roughly two-thirds stocks and one-third bonds, which makes for solid moderate allocation that can easily stay ahead of inflation long term, while minimizing market risk in the short term. The expense ratio for VBINX is just 0.07 percent and the minimum initial purchase amount is $3,000.
  • Hussman Strategic Total Return (HSTRX): If you're looking for a mutual fund that acts like a hedge fund, HSTRX is among the best you can find. The fund manager, John Hussman, is known for predicting the 2008 market downturn and for creating a balance of assets to average inflation-beating returns while minimizing losses during market corrections. HSTRX won't often lead the market on the upside but it's a good fund to hold when the economy finally enters a recession. The expense ratio for HSTRX is a reasonable 0.80 percent and the minimum investment is $1,000.

Best Bond Fund for 2019 and 2020

With inflation low, interest rates falling, and recession around the corner, investors are wise to choose bond funds that are diversified:

  • Vanguard Total Bond Market Index (VBTLX): When interest rates are stable or falling, intermediate- and long-term bonds will generally rise in price more than short-term bonds. And in an unpredictable environment, like 2019 and 2020 will likely be, a diversified fund like VBTLX can be a smart choice. The expense ratio for VBTLX is extremely low at 0.05 percent and the minimum initial purchase is $3,000.

Now that you have a list of the best mutual funds to buy in 2019 and 2020, it is important to remember that investing in just one fund, unless it's a balanced fund, is generally not a good idea. Therefore a combination of several of the above funds in one portfolio can make for a diversified mix.

Most importantly, market and economic conditions are difficult to accurately predict. The best funds to buy are those that suit your tolerance for risk and your investment objectcives.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.