Where To Invest Your 401(K)

American Funds EuroPacific Growth: HOLD

The American Funds EuroPacific Growth (AEPGX) has a low expense ratio and an experienced army of 12 managers. Like other funds from American Funds, comanagers run a portion of assets individually, but overall, they favor large, growth-oriented stocks in international markets. The biggest exposures are developed Europe, emerging Asia and Japan.

We're lukewarm on EuroPacific Growth, however, because the fund's calendar-year returns between 2017 and 2021 lagged the average return of funds in its category (foreign large growth). Over the past decade, the fund's risk-adjusted returns were average compared with its category, though they were better than the MSCI ACWI ex USA index. That's why the fund may work well if paired with a total international stock index fund (if one is offered in your retirement savings plan).

A total foreign stock index fund holds both growth and value stocks, which could balance the growth-style skew of EuroPacific Growth.

Vanguard Target Retirement 2030 Fund: BUY

In 2022, a terrible year for stocks and bonds, the Vanguard Target Retirement 2030 Fund (VTHRX) held up well relative to peers. The fund, best for investors retiring in less than 10 years, lost 16%, but that beat nearly 60% of 2030-dated target-date funds. Its 10-year annualized return ranks among the top 19% of its peers. Vanguard's target-date funds are popular in 401(k) plans; the firm's 2030 fund is the most popular of those. We use it as a proxy for the series.

Target-date funds are diversified portfolios. Experts decide on the appropriate mix of stocks, bonds and other assets, then shift the mix over time as you age and even after you retire. Vanguard's target-date funds adjust the blend of stocks and bonds for seven years after the target year, for instance. At last report, the firm's 2030 fund held 62% in stocks, 36% in bonds and the rest in cash. These funds are ideal for investors who don't want to deal with investment decisions.

Dodge & Cox Stock: BUY

Buying at a bargain and holding is the crux of the Dodge & Cox Stock (DODGX) fund's strategy. The managers will wait years, if necessary, for a turnaround. Some stock picks can be contrarian. Early in 2023, the managers added Norfolk Southern (NSC), a stock that sank after one of its trains derailed in Ohio in February. When stocks turn around and get pricey, the managers sell. In the first half of 2023, for instance, they reduced the fund's stake in Meta Platforms (META), which had climbed 138% in the first six months of 2023.

Their approach can lead to stretches of good and bad performance, which makes Dodge & Cox Stock best for patient investors who seek a value-oriented fund. The fund's 10-year annualized return, 9.8%, trails the S&P 500 by an average of 1.4 percentage points per year, but it outpaces 95% of other large-company value funds, which posted an average annual return of 7.6%.

Vanguard Primecap: BUY

The standout Vanguard Primecap (VPMCX) fund is closed to most new investors, but if it's offered in your employer-sponsored retirement savings plan, you can still buy shares even if you're new to the fund.

Five managers divvy up the assets among themselves and then pick their own stocks. But they all look for fast-growing companies with solid prospects that trade at a discount. The end result is a portfolio of 175 medium- and large-company stocks. At last report, Eli Lilly (LLY), Biogen (BIIB) and Adobe (ADBE) were among the fund's top holdings.

Primecap suffers inevitable bumps at times, as it did between 2019 and 2021, but investors who held on have been rewarded lately. Long-term returns are exceptional: Primecap outpaced the S&P 500 over the past 10, 15 and 20 years.

Vanguard Wellington: BUY

Wellington (VWELX) is Vanguard's oldest mutual fund. The balanced fund, which holds about 60% of its assets in stocks and 40% in bonds, was founded in 1929 and has long delivered category-beating returns.

The fund's current managers – Daniel Pozen on the stock side, Loren Moran on the bond side – are relative newcomers. As a duo, they have been running the fund only since early 2019. But their record since pairing, 6.2% annualized, beats the typical 4.5% gain in the average moderate allocation fund.

Pozen's biggest stakes include Microsoft (MSFT) , Alphabet (GOOGL) and Amazon.com (AMZN). On the bond side, Moran's high-quality portfolio has an average maturity of just over 10 years and is loaded with corporate debt. Investors with long time horizons who seek growth and muted volatility could consider this a core holding. At last report, the fund held 65% of assets in stocks and 34% in bonds (the rest in short-term reserves). It yields 2.8%.

T. Rowe Price Blue Chip Growth: HOLD

Since Paul Greene took over as manager of the T. Rowe Price Blue Chip Growth (TRBCX) two years ago, the fund has delivered a cumulative loss of 17.6%. That trailed the S&P 500, which lost 0.5%, as well as the average large-company growth stock fund, which declined a cumulative 13.7%.

Greene is not to blame for the 2022 bear market, of course, but neither is he to credit for the fund's past record, which was earned under longtime manager Larry Puglia. Given Greene's short tenure, we are hesitant to step into Blue Chip Growth for now. If you already own shares, we advise holding on, given the market trough. We'll keep watching to see how Greene settles in.

The fund has regained some ground since hitting bottom in 2022 – in fact, it has climbed 30.3% since the start of 2023, ahead of the S&P 500's 10.7% rise. Big stakes in Microsoft, Nvidia (NVDA) and Meta Platforms have helped.

Fidelity Contrafund: BUY

Fidelity Contrafund (FCNTX) is a solid choice for investors who want the verve of a large-company growth fund but less volatility. Over the past decade, Contrafund has outpaced its peers and the S&P 500, with below-average volatility.

Will Danoff has run the fund since 1990 and delivered spectacular long-term returns. He favors companies with what he calls "best of breed" qualities, including a strong competitive position, high returns on capital and management teams that act in the best interests of shareholders.

Last year, he pared back on the fund's exposure to software firms, and he beefed up his stake in energy stocks to 4% of assets. That helped performance in 2022 relative to peers, though the fund still lost 28%. Over the past 12 months, the fund has been on a tear, beating 89% of large growth funds with a 23% climb. This fund's a keeper.

American Funds Growth Fund of America: SELL/HOLD

Over the past 10 and 15 years, you would have been better off in a large-company index fund than in the American Funds Growth Fund of America (AGTHX). Of course, past performance is no indication of future returns. But Growth Fund doesn't fare well, either, next to its peers (funds that invest in fast-growing large-company stocks). The fund posted below-average returns relative to its category in seven out of the past 10 full calendar years.

Growth Fund is unlike its large-growth fund peers in key ways, however. It holds fewer tech stocks, bigger stakes in energy and economically sensitive companies, and a double helping of foreign stocks. It also tilts more toward midsize companies than the behemoths found in most large-growth funds. And stocks in the portfolio, on average, sport lower prices relative to earnings and sales. That gives the fund a slight value tilt, which may have helped the fund outperform the S&P 500 over the past 12 months.

If you hold shares in the Growth Fund, decide what role it will play in your portfolio. Is it your core large-company stock fund? A U.S.-stock index fund would offer similar returns and lower volatility, at a lower cost. But as a complement to a core index fund, with its midsize-stock and value tilt, it may be worth holding on to a small dose.

Fidelity Freedom 2030: BUY

The only target-date fund family besides Vanguard's to crack the top 10 in terms of 401(k) assets is Fidelity's suite of Freedom funds – the ones that hold actively managed funds. The active funds hold other funds that are managed by star Fidelity managers, including Steve Wymer of Growth Company and Will Danoff of Contrafund. At last report, the Fidelity Freedom 2030 (FFFEX) held roughly 60% in stocks – nearly half of that in foreign shares – and 40% in bonds, including high-quality U.S. bonds, junk-rated and floating-rate debt, and international IOUs. This fund is designed for workers who will retire in the next eight to 10 years.

It has a decent five-year record that ranks in the top 36% of its peer group. We like this series and recommend it if you're looking for an all-in-one fund.

Metropolitan West Total Return Bond: HOLD

Metropolitan West Total Return Bond (MWTIX), the biggest bond fund in 401(k) plans, is in a slump. It has lagged the Bloomberg U.S. Aggregate Bond index in six of the past 10 full calendar years. And over the past one, three, five and 10 years, its annualized returns rank among the bottom 79% of its fund category (intermediate core-plus bond) or lower.

A changing of the guard among the managers gives us pause, too. Longtime manager Tad Rivelle retired, and the fund added two new comanagers, bringing the manager total to five. Overall, the managers are struggling to overcome a 14.9% loss in 2022 – greater than the 13.0% loss in the Agg index – when interest rates rose fast and furiously (bond prices and interest rates move in opposite directions).

The fund's returns are improving – helped by gains in corporate debt in 2023 – but the managers are still digging themselves out of a hole. Hold on if you currently own shares. But if you're considering the fund anew, step in slowly, or invest in a bond index fund.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.