Building an investment portfolio is a personal experience, yet most investors would probably agree that they own certain funds they would call "core holdings," that is, those mutual funds or exchange-traded funds they expect to do most of the heavy lifting when it comes to reaching their goals, Morningstar investment specialist Susan Dziubinski wrote in a blog post this week.
So, what types of ETFs and mutual funds are good core funds? The answer depends in part on the investor's time horizon, according to Dziubinski's colleague, portfolio strategist Amy Arnott.
For goals that are two to six years away, Arnott recommends a high-quality bond fund with a short-to-intermediate maturity. For goals a decade or longer out, investors should look to stock funds.
"Typically, if you're investing for a goal that's at least 10 years away, you really want to be focusing on growth," she says.
Best Investments for a Core Portfolio
Dziubinski wrote that new Morningstar research has concluded that three types of stock mutual funds and ETFs make the best core portfolio holdings. They cluster in three Morningstar categories: U.S. large blend, foreign large blend and global large blend.
According to Arnott, because the funds in these categories provide broad representation of the overall stock market, either in the U.S. or globally, these categories have a narrower dispersion of returns than other equity categories and therefore generate more predictable returns — just what investors want from their core holdings.
See the gallery for 15 funds that Morningstar analysts consider among the best stock funds for the core of a long-term portfolio. Year-to-date performance is as of July 25.
15. American Funds International Growth and Income (IGAAX)
Morningstar category: Foreign large blend Total assets: $15.1 billion Expense ratio: 0.9% YTD performance: 12.2%
14. DFA US Core Equity (DFEOX)
Morningstar category: Large blend Total assets: $31 billion Expense ratio: 0.14% YTD performance: 16.8%
13. Fidelity 500 Index (FXAIX)
Morningstar category: Large blend Total assets: $420.6 billion Expense ratio: 0.015% YTD performance: 20.1%
12. Fidelity Total Market Index (FSKAX)
Morningstar category: Large blend Total assets: $76 billion Expense ratio: 0.015% YTD performance: 19.7%
