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3 Funds You Can Hold Forever

Christine Benz
Sarah Bush

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Warren Buffett famously said that his ideal holding period is forever. Those are good words for mutual fund investors to live by, too. Buying and holding investments for a very long time helps keep trading costs to a minimum. It will also help limit the drag of taxes on your taxable account. Trading infrequently also lessens the amount of time that you'll have to spend on your portfolio. Index tracking funds, whether traditional index funds or ETFs, are the ideal set it and forget it options. You won't have to worry about portfolio managers coming and going or the fund strategy changing. One index fund can cover the whole U.S. market.

Adam McCullough: IShares Core S&P Total US Stock Market Index, ITOT, is a great fund to own forever because it's very broadly diversified and very cheap. This fund only costs 3 basis points per year, so that means for every $10,000 invested, iShares only charges you $3 to own this fund. The fact that it owns nearly every stock in the U.S. market means that you don't have to shift between large-, mid- and small-cap stocks; you can own this one fund and own nearly every stock in the U.S. market.

A big advantage of a broadly diversified portfolio that's market-cap-weighted is that it's very efficient to run. The stock weightings are set by their prices, so they adjust automatically as the market ebbs and flows. 

Because this fund is always fully invested, that means that there is some downside risk. It will feel the full force of the bear market, but it also means that it won't miss a rally. For instance, during the bear market in October 2007 through March 2008, it lost more than the average fund in the U.S. large blend category, but it recovered more quickly than those funds because it didn't miss the first part of the rally. All said, this fund earns a Morningstar Analyst Rating of Gold and is a cheap, efficient, and quick way to own the entire U.S. stock market.

Benz: Bond investors can also reasonably buy a broad bond market index fund and call it a day, though funds that are focused on the Bloomberg Barclays Aggregate Index do have a big emphasis on government bonds. Actively managed bond funds with sensible strategies and stable management situations can work well as hold-forever funds, too.

Sarah Bush: Dodge & Cox Income makes a great core, long-term bond holding. The funds stands out for a number of strengths. First of all, it has a stable and experienced management team. Because there's a team-based approach here, it makes manager turnover less likely, and when it does happen it's less problematic. Investors don't have to rethink their choices.

Parent here is an exemplary one; managers invest along side shareholders, which is wonderful. The team takes a long-term, value-based approach, tends to favor corporate bonds, and they are willing to take risks, sometimes investing in controversial or downtrodden parts of the market when they think investors are getting paid. That said, they'll also take risk off the table when they think the valuations are not compelling, which is something we really like about them.

The fund has great long-term returns, can take a little bit of patience through riskier credit markets, but overall investors have been served very well here. Low expenses just sweeten the pot.

Benz: All-in-one funds that bundle together stocks and bonds can be ideal options for hands-off investors with long holding periods. The key to selecting such a fund is ensuring that the firm running it is skillful at managing both stock and bond investments.

Alec Lucas: Vanguard Wellington is a balanced fund whose origins predate the Great Depression. It has a mix of 65% equities and roughly 35% bonds. It's got a large cap-oriented portfolio rooted in dividend paying stocks. It's relatively conservative . It's been a very effective fund for the long term. It's beaten in the S&P 500 over the past 20 years through January 2018.

Over its entire lifespan, dating back to 1929, it's turned an original investment of $10,000 into more than $11.5 million. Named for the Duke of Wellington who minimized his own losses in warfare and overcame numerically superior foes, the fund has had a similar approach throughout its long life and has rewarded investors. It's one to keep for the long term.