Best Mutual Funds to Buy in 2020

How to Invest in Mutual Funds in a Volatile Year While Taking Long View

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The best mutual funds to buy include a diverse range of categories ideal for weathering volatility and a weakening economy. Even amid a bear market for stocks, long-term investors can always still take advantage of lower prices while keeping a long-term perspective beyond the current year. With this in mind, we highlight six funds.

How We Selected the Best Mutual Funds 

Using a long-term investing philosophy, an investor can attempt to determine which are the best mutual funds to buy and hold now and for the next decade and beyond.

Here’s how we selected the best mutual funds to buy for 2020.

  • Low expenses: When choosing the best funds to buy, no matter how long the holding period, investors are smart to choose among the best low-cost, “no-load” funds sold without a commission or sales charge. This is important because keeping costs low is a fundamental aspect of producing higher returns, especially in the long run.
  • Diversification, balance of assets: By allocating a portfolio to multiple asset classes, including stocks, bonds, and cash, investors can protect themselves from the extremes of a bear market while still maintaining exposure for long-term gain. In short, keep in mind the risk/reward degree of investments. Stocks are higher-risk but hold higher potential for long-term gain, while bonds are lower-risk but offer less promise of long-term gain. 
  • Defensive Sectors: Some sectors of the economy can fare better than others during a weak economy. These sectors are called “defensive” because of this resilience during hard times. Defensive sectors include health care and consumer staples.

With a recession probable in 2020 or 2021, it's wise for investors to plan for weakening economic conditions. Meeting this challenge calls for a well-diversified portfolio consisting of funds that avoid high-risk areas of the market such as small-capitalization stocks and emerging markets. Instead it should concentrate on lower-risk areas. These can include high-quality, large-cap U.S. stocks and certain bond funds. 

Some investors may choose balanced funds that invest in a combination of several types of securities.

With these current factors and approaches in mind, here are some of the best funds that have potential to be leaders in the coming years.

Best Stock Mutual Funds for 2020

We'll start our list of the best mutual funds with ones focused on stocks.

Vanguard 500 Index Fund (VFIAX)

When building a portfolio of mutual funds, it's good to start with a large-cap stock index fund as a core holding. This is because S&P 500 index funds like VFIAX invest in roughly 500 of the largest U.S. companies, as measured by market capitalization. This provides diversification and a foundation upon which an investor can build a portfolio. VFIAX has a rock-bottom expense ratio of 0.04%, and an initial minimum purchase of $3,000.

Fidelity Select Consumer Staples Portfolio (FDFAX)

Stocks entered a bear market in March 2020, but it's not smart to completely jump out of stocks and wait for this major correction to come and go before getting back in. Instead, it may be prudent to stay in stocks but just tap down the risk a bit by investing in defensive areas like consumer staples. These are companies that sell products and services that consumers 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%, and there is no minimum initial investment.

Vanguard Health Care Fund (VGHCX)

Similar to consumer staples, people still need to buy their medicine and see the doctor during economic downturns. The health care 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 during market corrections. Vanguard notes, however, that the fund’s narrow scope centered on one industry makes it best-suited to be considered complementary to an already diversified portfolio. VGHCX has an expense ratio of just 0.34% and a minimum initial investment of $3,000.

Best Balanced Mutual Funds for 2020

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

Vanguard Balanced Index Fund (VBIAX)

Stocks may outperform bonds in the long run, but a bear market for stocks and a recession will likely reverse that trend in 2020. VBIAX has an asset allocation of roughly 60% stocks and 40% bonds, which makes for a solid moderate allocation that should be able to stay ahead of inflation long-term, while minimizing market risk in the short term. The expense ratio for VBIAX is just 0.07% and the minimum initial purchase amount is $3,000.

Hussman Strategic Total Return Fund (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, perpetual market “bear” 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 again enters a recession. The expense ratio for HSTRX is a reasonable 0.74% and the minimum investment is $1,000.

Best Bond Mutual Funds for 2020 

With inflation low, interest rates falling, and the potential for a recession in 2020, investors may be wise to choose bond funds that are diversified.

Vanguard Total Bond Market Index Fund (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 2020 has delivered so far, a diversified bond fund like VBTLX may be a good choice. The expense ratio for VBTLX is extremely low at 0.05% and the minimum initial purchase is $3,000.

A combination of several of the recommended funds on this list in one portfolio may make for a diversified mix.

The Bottom Line

After reviewing some of the best mutual funds to buy in 2020, it’s important to remember that investing in just one fund, unless it's a balanced fund, may not be enough to make your portfolio sufficiently diversified. 

Also keep in mind that shrewd investors don't try to time the market by jumping in and out of investments in the short term, but instead will use a buy-and-hold strategy for periods of more than one year. Most important, remember that market and economic conditions are difficult to accurately predict, especially in times of volatility. The best funds to invest in are those that suit your tolerance for risk and your investment objectives.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.