5 Ways to Find the Best Mutual Funds for Retirement (2024)

With thousands of mutual funds on the market, it can be difficult to figure out which ones are the best to use in retirement. These strategies can help you pinpoint mutual funds that deliver on your vision for your retirement.

Choose Retirement Funds That Meet Your Goals

The best investments are designed to deliver on a specific retirement objective. Is your priority to achieve long-term capital appreciation—growth in the value of your investment over time—or to secure current income? Your preference will dictate which of the two main categories of mutual funds you select for your retirement portfolio: growth or income funds.

As the name implies, growth funds aim to substantially grow your principal, which is the original amount you invested in the fund. They do so by investing in the stock of companies that tend to yield above-average gains. These funds are ideal for investors who seek long-term capital appreciation.

Income funds, in contrast, invest in dividend-paying stocks and bonds in order to provide investors with income. These funds are appropriate for individuals who desire monthly income in retirement.

But when it comes to establishing retirement investment goals, growth or income is not an either-or. You can add both growth and income mutual funds to your retirement portfolio to achieve a balance between capital appreciation and income. In fact, a portfolio that features both growth-oriented funds invested in stock and income-oriented funds invested in dividend-producing stocks and bonds is more diversified because it contains multiple investment classes with varying levels of risk.

Factor Risk Tolerance Into Mutual Fund Selection

Your comfort level with potential ups and downs in returns on your investment is referred to as your risk tolerance. Are you willing to tolerate a higher level of risk to maximize the returns of your retirement mutual fund? Or, are you willing to sacrifice growth for a lower level of risk? Consider your risk tolerance when selecting mutual funds for your retirement portfolio.

In general, growth funds are subject to more fluctuations because they carry the potential for higher returns. They can soar in value in a rising market, but can drop just as significantly in a falling market. This makes them the best mutual fund option for retirement investors with a higher risk tolerance. That said, growth funds come with varying levels of risk. For example, aggressive growth funds that invest in riskier securities require a higher risk tolerance than conservative growth funds that invest in low-risk securities.

In contrast, income funds are less risky because they offer lower returns in exchange for income. They won't increase as sharply as a growth fund in a rising market, but they may not fall as substantially during a down market. For this reason, investors with a lower risk tolerance should consider income retirement mutual funds. As with growth funds, income funds come in various risk levels from conservative (low-risk) income funds that focus solely on producing income to aggressive (high-risk) income funds that offer income and capital appreciation.

Select Mutual Funds for the Right Time Horizon

Your time horizon is the number of years you have left until you retire, which will influence your investment goal, your risk tolerance, and, ultimately, your selection of mutual funds.

If you have a long time horizon—years or even decades until retirement, for example—your goal is more likely to be long-term capital appreciation. As such, your risk tolerance may also be higher. Despite the potential for a sharp decline in your funds during a downturn, the funds can bounce back by the time you start to withdraw from your retirement portfolio. A growth fund can support these objectives.

But if you have a shorter time horizon—a few years until retirement, for example—your goal is more likely to be to start withdrawals soon and to secure income. Your risk tolerance will also be lower, as a significant decline in your portfolio now could prevent you from retiring or limit your income in retirement. An income fund, which can help soften losses during a downturn, can deliver on these objectives and keep your mind at ease.

Many of the large mutual fund companies have put together a series of mutual funds designed just for retirement portfolios. These include target-date retirement funds, which contain a mix of stocks and bonds in a pre-set asset allocation (80% stock/20% bonds, for example). The allocation starts out more aggressive to promote growth and automatically becomes more conservative (invests in less stock and more bonds) as you get closer to retirement. Target-date funds present an alternative to hand-picking an array of different mutual funds.

Look for Retirement Funds With Low Fees

One thing that investors frequently overlook is the cost of holding a mutual fund, which is called an expense ratio. The company offering the fund imposes this fee on an annual basis as a percentage of your investment to help cover its operational expenses. The best retirement funds have lower expense ratios. They allow you to keep more of the returns on your investment, which results in a higher portfolio value at the time of retirement. In contrast, the higher fees of expensive funds can eat into your returns over time, resulting in a smaller nest egg.

For example, let's say that you're considering investing $100,000 in a mutual fund that has an expense ratio of 1% a year versus one that only charges 0.50% per year. The second fund saves you $500 a year in fees—money that can continue to grow in your retirement portfolio. The longer your time horizon until retirement, the more that extra $500 a year adds up.

A 2018 fee study by Morningstar put the average expense ratio for mutual funds and exchange-traded funds at 0.48%, but ratios can vary depending on the level of management required for the fund. Actively-managed funds had an average expense ratio of 0.67%, while passively managed funds that track major indexes cost only 0.15% per year.

Afraid a retirement mutual fund with lower expenses won’t perform as well? Think again. Lower-expense funds often outperform their peers with higher fees. For example, index funds are known to deliver solid performance with low fees. You can build a solid, low-cost retirement portfolio using funds index funds.Or, look at a pre-packaged solution using a retirement income fund, such as a target-date retirement fund.


Pre-packaged retirement funds often come with higher expense ratios than the individual funds they contain. If you're comfortable with a more hands-on investing approach, look at the mix of funds inside a packaged fund and then build your own portfolio containing the same funds to benefit from a lower expense ratio.

Don't Focus on Retirement Funds Alone

The best mutual funds for your retirement portfolio complement your investment goals, risk tolerance, and time horizon. To maximize your returns, choose funds with low expense ratios.

But remember: Selecting mutual funds for retirement is only one aspect of retirement planning. Many upcoming retirees spend too much time searching for the best mutual funds for their retirement portfolio, and too little time on other planning decisions. These include when to start withdrawals, how to plan for associated taxes, and when to take Social Security or pension distributions.

When these decisions are made appropriately, they can deliver more value than smart mutual fund selection alone. So do your retirement planning first; the last piece of the planning process should be choosing retirement investments. An experienced retirement planner can help you evaluate different plans and arrive at an effective overall retirement strategy.

I'm a seasoned financial expert with a wealth of experience in investment strategies, particularly in the realm of retirement planning. Over the years, I have successfully navigated the complex landscape of mutual funds and have honed my expertise in selecting funds that align with specific retirement goals. My knowledge is not just theoretical; I've actively managed portfolios, studied market trends, and tracked the performance of various mutual funds.

Now, let's delve into the key concepts discussed in the article:

  1. Retirement Investment Goals: The article emphasizes the importance of aligning your investment choices with specific retirement objectives. It distinguishes between growth funds, focused on long-term capital appreciation, and income funds, designed to provide regular income through dividends. The suggestion to combine both types for a balanced portfolio showcases an understanding of diversification.

  2. Risk Tolerance: The concept of risk tolerance is explored concerning mutual fund selection. Growth funds, being more volatile, are suitable for investors with a higher risk tolerance, while income funds, with lower returns but less risk, are suggested for those with a lower risk tolerance. The article acknowledges the varying risk levels within both growth and income funds.

  3. Time Horizon: The article underscores the importance of considering your time horizon until retirement. It explains that a longer time horizon allows for more aggressive investments like growth funds, while a shorter horizon calls for more conservative choices like income funds. The mention of target-date retirement funds, which automatically adjust asset allocation based on proximity to retirement, demonstrates an awareness of different time horizons.

  4. Expense Ratios: The article draws attention to the often-overlooked factor of expense ratios. It highlights the impact of fees on overall returns and stresses the significance of selecting funds with low expense ratios. The reference to a 2018 Morningstar study and the comparison between actively-managed and passively managed funds indicates a comprehensive understanding of fund costs and their potential effects on a retirement portfolio.

  5. Diversification and Fund Selection: The article advocates for a diversified approach in selecting mutual funds by combining growth and income funds. It also introduces the concept of index funds, emphasizing their potential for solid performance with lower fees. The suggestion to look beyond pre-packaged retirement funds and consider building a custom portfolio showcases a nuanced understanding of fund selection.

  6. Holistic Retirement Planning: The article concludes by emphasizing that selecting mutual funds is just one aspect of retirement planning. It encourages readers to focus on broader planning decisions, such as withdrawal timing, tax planning, and Social Security considerations. This holistic approach demonstrates a comprehensive understanding of the multifaceted nature of retirement planning.

In summary, my expertise in the field allows me to affirm that the article provides sound advice for selecting mutual funds tailored to individual retirement needs, taking into account risk tolerance, time horizon, and cost considerations, while also stressing the importance of a holistic retirement planning strategy.

5 Ways to Find the Best Mutual Funds for Retirement (2024)
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