5 Great Funds for Your Tax-Sheltered Account
Cram your tax-sheltered accounts full of Morningstar Medalists.
Cram your tax-sheltered accounts full of Morningstar Medalists.
What makes for a good tax-sheltered fund? For the most part, it has the same things you'd seek in a fund for a taxable account: Low costs, good management, a sound strategy, and a solid fund company. However, since tax-sheltered investments tend to be longer-term holdings, it's worth emphasizing funds that can build wealth over 15 or more years. Here are a few Morningstar Medalists for the job.
Vanguard Target Retirement 2030 (VTHRX)
This fund is a great set-it-and-forget-it option. It's cheap, covers a wide swath of the investable market, and adjusts over time. If you already have plenty of funds, you could simplify things in one fund that you don't have to fret over. Vanguard has target-date funds that aim for a retirement date every five years, so you should be able to find one that syncs up with your retirement plans. The funds hold varying mixes of Vanguard Total Stock Market Index (VTSMX), Vanguard Total International Stock Index (VGTSX), Vanguard Total Bond Market II Index (VTBIX), and Vanguard Total International Bond Market Index (VTIBX).
Dodge & Cox Global Stock (DODWX)
Staying with my wide-net theme, I have chosen a world-stock fund that covers a lot of ground. Dodge & Cox Global Stock builds off of Dodge's strength in researching stocks around the globe. It takes a value bent and has the patience to see the payoff. But don't look for Dodge to hop around in search of the best markets. It tends to move slowly. This is more of a pure issue-selection vehicle. With a deep team and low expenses of just 0.65%, this should be a fund you can own for a long time.
FPA Crescent (FPACX)
Steve Romick's fund doesn't cover nearly as much ground as the above options, but its mix of aggression and caution still make it a strong choice for your IRA. Romick looks for cheap stocks with strong long-term potential, but he doesn't stop there. He looks for other creative ways to generate strong returns, including unusual debt or real estate deals, as well as bonds. He also typically holds a big slug of cash. The result is a fund that generally loses less in down markets while still enjoying respectable returns in rallies.
Loomis Sayles Bond (LSBDX)
Many investors like to put a bond fund in their tax-sheltered accounts because they don't have to pay taxes on the income. However, you probably still want some strong return potential. Dan Fuss and team deliver that in this wide-ranging bond fund. They buy lots of lower-quality debt from corporate issuers and foreign countries. They even buy convertibles and a small amount of stocks. The record here is outstanding, but be wary of that credit risk. This fund will feel it when we hit the next pothole in the economy. It's best for investors who have very little high-yield or foreign-debt exposure today. If you already have a lot, this is probably not the time to raise your bets.
Harding Loevner Emerging Markets (HLEMX)
There aren't many contrarian bets to make today, but emerging markets lost money in 2013's big equity rally, and with signs of slowing growth in China, they may continue downward. But valuations may be cheap enough to make emerging markets a good buy anyway. Harding Loevner isn't a household name, but it has impressed us with its expertise in finding bargains in a lot of markets. Its approach is to find quality at a modest price. It has done such a good job that the fund has strong long-term returns and typically loses less in downturns.
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