3 Mutual Funds Perfect for Your 401(k)

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Your 401(k) retirement plan is all about investing in your future. That means a few different things as far as choosing the mutual funds in which to invest.

First, you want to consider your time horizon. If you have a long horizon, that means that you have years to weather the market's ups and downs. Second, you want to set it and forget it -- that is, you want funds that produce consistent, long-term returns that aren't prone to wild swings, especially if you're closer to retirement. Third, you want a portfolio of diversified funds that perform differently in various market environments to smooth out your overall returns.

Here are three mutual funds that will help you accomplish these objectives.

Fidelity 500 Index Fund (FXAIX)

An index fund is an essential part of a 401(k) portfolio for a few reasons. These types of funds usually have very low expense ratios -- that is, the proportion of your assets that you spend on management and administration fees. Lower expense ratios mean more returns for you.

They also track the index they represent. In Fidelity 500 Index Fund's (NASDAQMUTFUND: FXAIX) case, that's the S&P 500. The S&P 500 includes the largest 500 large-cap stocks in the U.S. It's considered the best barometer for the performance of the market.

The Fidelity 500 Index fund, with $224 billion in assets, has performed pretty much in sync with the S&P 500 over the years. It has a 5-year annualized return of 9.86%, a 10-year return of 13.14%, and a lifetime annualized return of 10.18% as of May 31. It has among the lowest expense ratios out there at 0.015%. This rivals its main competitor, the Vanguard 500 Index fund, which has 0.014%.

Fidelity 500 slightly outperforms Vanguard 500 for both 5- and 10-year returns (by 14 and 15 basis points, respectively). It also outperforms the large blend fund average with 7.58% and 11.42% for the 5- and 10-year returns.


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