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What Are the Best Mutual Funds to Buy in 2020?

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Sep. 1 2020, Updated 9:38 a.m. ET

Since there are about 10,000 mutual funds investors could choose from in the U.S. alone, what are the best mutual funds to buy in 2020? Mutual funds come in different forms and investors will have various investing goals. There are factors that smart investors should take into account when picking the best mutual funds to invest in.

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Is it a good time to invest in mutual funds?

A smart investor will determine the best mutual funds to invest in now and whether it's a good time to invest in mutual funds. First, it's important to understand how mutual funds work.

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Investing in mutual funds can be a great way to manage market volatility. Mutual funds often invest a diverse range of stocks, which spreads out their risks. 

For example, a fund focused on generating income for shareholders may invest in dozens or hundreds of dividend-paying stocks. The fund can continue paying dividends to shareholders even if a few of its holdings are cut or its suspend dividends, which some companies did in response to economic shock amid the COVID-19 pandemic. 

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A diverse portfolio of mutual funds can give small investors greater exposure to the stock market than they can achieve individually. For example, you could have exposure to all of the S&P 500 stocks through a single mutual fund.

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The mutual fund universe is vast. If investors do their homework and pick the best mutual funds that align with their investing goals, then anytime would be good to invest in mutual funds.

Picking the best mutual funds to buy anytime

Whether you are looking for the best mutual funds to buy in 2020 or anytime, there are things investors should look for when assessing funds for potential investment. First, mutual funds are passive or active. 

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Passive mutual funds are also called index funds. They seek to replicate the performance of a specific benchmark like the S&P 500 Index. Active mutual funds seek to outperform the market. 

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When choosing the best mutual funds to invest in, the cost should be a key consideration. Mutual funds charge shareholders an annual fee called the expense ratio. The fees are used to help run the fund. The expense ratio is expressed as a percentage of your assets in the fund. The ratio could be 0.1 percent – 3.0 percent. Actively managed funds usually charge a higher expense ratio than passively managed funds. 

In addition to the expense ratio, some funds may levy load, which is the fee you pay when you purchase or sell the fund’s shares. Since expenses can quickly reduce your investment returns, it's best to go for mutual funds with the lowest or most reasonable costs. 

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As an investor, the best mutual fund to buy would be a fund that aligns with your investment goals and risk tolerance. For example, if you are seeking current regular income, then your best bet would be mutual funds with dividends. Similarly, if you are looking to save for a college education, then you would find growth-focused funds ideal.

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Mutual funds usually have a minimum investment amount, which could range from a few thousand dollars to a million dollars. Therefore, you should look at your budget when selecting mutual funds to buy.

What are the best mutual funds in 2020?

There are mutual funds that have a solid track record with good returns and reasonable fees. The mutual funds invest in carefully selected stocks or sectors. If you are looking for the best mutual funds to invest in this year, below are three of the well-regarded funds that you might find attractive.

  • the Vanguard Health Care Fund Investor Shares
  • the Fidelity Advisor Financial Services Fund
  • the T. Rowe Price Equity Income Fund 
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The Vanguard Health Care Fund Investor Shares

The Vanguard Health Care Fund Investor Shares active fund invests in the global healthcare sector. The fund's holdings include hospitals, pharmaceutical, and medical equipment supplier stocks. VGHCX has boasted an above-average return since its inception. The fund's expense ratio of 0.32 percent is below average for an actively managed fund. 

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The fund’s minimum investment requirement is $3,000. The COVID-19 pandemic and aging global population will continue to drive the demand for health products and services. Considering that VGHCX invests in domestic and international stocks, it stands out as one of the best mutual funds for investors seeking exposure to the healthcare sector.

The Fidelity Advisor Financial Services Fund

The Fidelity Advisor Financial Services Fund is one of the best mutual funds for a growth-focused investor seeking exposure to the financial services sector. FAFDX invests at least 80 percent of its assets in the securities of companies engaged in providing financial services to businesses and consumers. The fund invests in domestic and international securities. 

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FAFDX has a 1.07 percent expense ratio and a 5.75 percent front-end load — the fee charged when buying shares in the fund. FAFDX doesn’t charge back-end load — the fee charged when selling shares in the fund. Also, the fund doesn't have a minimum investment requirement.

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The T. Rowe Price Equity Income Fund

The T. Rowe Price Equity Income Fund stands out as one of the best mutual funds for dividend-seeking investors. The fund invests in large-cap stocks that have a strong dividend history. PRFDX also targets undervalued large-cap stocks. Therefore, the fund doubles as an income and growth investment. The fund has a $2,500 minimum investment requirement and has an expense ratio of 0.64 percent. 

Finally, there are good mutual funds for every investor. If you have developed a clear investment goal, know your risk profile, and know what to look out for, then picking the best mutual fund to buy should be easy. 

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