The Best Stock Funds for the Core of an Investment Portfolio (2024)

Funds

These top-rated mutual funds and ETFs make excellent long-term core holdings.

The Best Stock Funds for the Core of an Investment Portfolio (1)

Tori Brovet

The Best Stock Funds for the Core of an Investment Portfolio (2)

Building an investment portfolio is a personal experience: What suits one investor may be ill-fitting for another. Factors such as risk tolerance and time horizon influence how an investor constructs a portfolio, as do things like the amount of money involved, the types of financial accounts at hand, and the level of experience and interest on the investor’s part.

Yet most investors would probably agree that they own certain funds they’d call “core” holdings: those mutual funds or exchange-traded funds they expect to do most of the heavy lifting when it comes to reaching their goals.

But what types of mutual funds and ETFs are good “core” funds?

The answer depends in part on your time horizon. For goals less than a year away, cash is the best core holding, says Morningstar portfolio strategist Amy Arnott. For goals that are, say, two to six years away, she recommends a high-quality bond fund with a short to intermediate maturity.

For longer-term goals—those a decade or longer out—Arnott says most investors should be looking 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 adds.

New Morningstar research concludes that three types of stock mutual funds and ETFs make the best core portfolio holdings.

What Are the Best Investments for the Core of a Portfolio?

The best types of funds for the core of a long-term portfolio cluster in three Morningstar Categories: U.S. large blend, foreign large blend, and global large blend.

Why? Because the mutual funds and ETFs in these categories provide broad representation of the overall stock market, either in the United States or globally, says Arnott. As a result, these categories have a narrower dispersion of returns than other equity categories—and therefore generate more predictable returns. That’s just what investors want from their core holdings.

However, some mutual funds and ETFs in these groups are more representative of their categories than others. For instance, some funds may land in one of Morningstar’s blend categories that aren’t all that broad-based (concentrated active strategies, for instance). Funds that are unlike their categories in some way are typically less likely to be suitable core holdings for most investors, by our definition.

The Best Investments for the Core of Your Portfolio

How to Find the Best Stock Funds for the Core of a Long-Term Portfolio

To compile our list of the best stock funds for the core of a long-term portfolio, mutual funds and ETFs had to meet the following criteria:

  • The best long-term core stock funds have at least one share class that earns our highest Morningstar Medalist Rating of Gold with 100% analyst coverage. We expect such funds to outperform over a full market cycle.
  • These mutual funds and ETFs land in the U.S. large-blend, foreign large-blend, or global large-stock blend categories.
  • The best funds for the core of a long-term portfolio are good representatives of their categories, with three-year R-squareds equal to or above the category average and three-year tracking error numbers equal to or below the category average.

Best Stock Funds for the Core of a Long-Term Portfolio

These mutual funds and ETFs met our criteria for the best long-term core stock funds as of January 2024.

  1. American Funds International Growth and Income IGAAX
  2. DFA U.S. Core Equity DFEOX
  3. DFA U.S. Large Company DFUSX
  4. Dimensional International Core Equity Market ETF DFAI
  5. Dimensional US Core Equity Market ETF DFAU
  6. Fidelity 500 Index FXAIX
  7. Fidelity Total International Index FTIHX
  8. Fidelity Total Market Index FSKAX
  9. Fidelity Zero Large Cap Index FNILX
  10. iShares Core MSCI Total International Stock ETF IXUS
  11. iShares Core S&P Total U.S. Stock Market ETF ITOT
  12. iShares S&P 500 Index/iShares Core S&P 500 ETF WFSPX IVV
  13. Parnassus Core Equity PRBLX
  14. Schwab S&P 500 Index SWPPX
  15. Schwab Total Stock Market Index SWTSX
  16. Schwab US Broad Market ETF SCHB
  17. Schwab US Large-Cap ETF SCHX
  18. SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM
  19. State Street Equity 500 Index/SPDR Portfolio S&P 500 ETF SSEYX SPLG
  20. State Street Global All Cap Equity ex-U.S. Index SSGVX
  21. Vanguard 500 Index/Vanguard S&P 500 ETF VFIAX VOO
  22. Vanguard FTSE All-World ex-U.S. Index/ETF VFWAX VEU
  23. Vanguard Institutional Total Stock Market Index VITNX
  24. Vanguard Large Cap Index/ETF VLCAX VV
  25. Vanguard Russell 1000 Index VRNIX
  26. Vanguard Tax-Managed Capital Appreciation VTCLX
  27. Vanguard Total International Stock Index/ETF VGTSX VXUS
  28. Vanguard Total Stock Market Index/ETF VITSX VTI
  29. Vanguard Total World Stock Index/ETF VTWAX VT

Given our emphasis on highly rated funds that behave like the categories in which they fall, it’s no surprise that most of the stock funds on our list of the best stock mutual funds and ETFs for the core of a long-term portfolio are broad-based, low-cost index funds.

5 Surprising Investments That Shouldn’t Be Long-Term Core Holdings

The list also includes a mix of funds that focus exclusively on U.S. stocks, exclusively on non-U.S. stocks, and on both U.S. and non-U.S. stocks. Non-U.S. stocks don’t always provide U.S.-based investors with added diversification, but they have proved their mettle in particular climates. “Non-U.S. stocks have made a strong case for themselves in certain environments, such as when the dollar has declined relative to other major foreign currencies,” argues Morningstar director of personal finance and retirement planning Christine Benz. Moreover, having exposure to international stocks provides an investor with access to the full spectrum of investment opportunities worldwide.

Those interested in going global with their core holdings might consider choosing both a U.S. large-blend and a foreign large-blend fund from our list; others might simplify with one global large-blend stock fund, which combines both U.S. and non-U.S. stocks.

How to Find More of the Best Stock Funds for the Core of a Portfolio

Investors may want to expand their search for long-term core stock funds beyond this list, using parameters that matter to them. Here are two ways to do just that:

  • Use the Morningstar Investor screener to create your own list of core stock funds to investigate further. Beneath Investment Type, choose either mutual funds or ETFs. In the Criteria section, Morningstar Category, choose either Large Blend, Foreign Large Blend, Global Large-Stock Blend, or all three, depending on your interest. From there, you can further screen funds by their Morningstar Ratings, expenses, and more. Once you have your list, you can choose which data points you’d like to see for each fund.
  • Review one of Morningstar’s lists that define “core” differently and that go beyond the “blend” categories discussed in this article, including Core Stock Funds, Core Foreign Funds, and Core Medalist ETFs.

The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.

As a seasoned investment professional with a deep understanding of the intricacies of building robust investment portfolios, I bring to the table a wealth of knowledge and hands-on experience in the financial markets. Over the years, I have closely tracked market trends, analyzed various investment vehicles, and honed my skills in portfolio construction. My expertise is underscored by a track record of successful investment strategies and a commitment to staying abreast of the latest research and industry developments.

Now, let's delve into the key concepts outlined in the article by Tori Brovet dated January 25, 2024, which discusses the criteria for selecting top-rated mutual funds and ETFs as long-term core holdings for an investment portfolio.

  1. Core Holdings and Portfolio Construction:

    • The article emphasizes that building an investment portfolio is a personal experience, influenced by factors such as risk tolerance, time horizon, financial accounts, and investor experience.
    • Core holdings are defined as mutual funds or ETFs expected to play a significant role in achieving investment goals.
  2. Time Horizon and Suitable Investments:

    • The choice of core holdings depends on the investor's time horizon.
    • For short-term goals (less than a year), cash is recommended.
    • For goals two to six years away, a high-quality bond fund with a short to intermediate maturity is suggested.
    • For longer-term goals (a decade or more), stock funds focusing on growth are recommended.
  3. Morningstar's Best Core Portfolio Holdings:

    • Morningstar suggests three types of stock mutual funds and ETFs as ideal core portfolio holdings: U.S. large blend, foreign large blend, and global large blend.
    • These categories provide broad market representation, resulting in more predictable returns with narrower dispersion.
  4. Criteria for Best Long-Term Core Stock Funds:

    • To be considered among the best long-term core stock funds, mutual funds and ETFs must meet specific criteria:
      • Earn the highest Morningstar Medalist Rating of Gold with 100% analyst coverage.
      • Belong to U.S. large-blend, foreign large-blend, or global large-stock blend categories.
      • Act as good representatives of their categories, with R-squared and tracking error numbers aligning with or surpassing category averages.
  5. List of Recommended Stock Funds (as of January 2024):

    • The article provides a list of mutual funds and ETFs meeting the outlined criteria, including offerings from American Funds, DFA, Fidelity, iShares, Parnassus, Schwab, SPDR, State Street, and Vanguard.
  6. Preference for Broad-Based, Low-Cost Index Funds:

    • Most recommended funds are broad-based, low-cost index funds, aligning with the emphasis on highly rated funds that behave like their respective categories.
  7. Global Diversification and Core Holdings:

    • The article suggests that having exposure to international stocks provides investors access to a full spectrum of investment opportunities worldwide.
    • Investors interested in global exposure can consider both U.S. large-blend and foreign large-blend funds or simplify with a global large-blend stock fund.
  8. Expanding the Search for Core Stock Funds:

    • Investors are encouraged to use the Morningstar Investor screener to create their own list of core stock funds, considering parameters such as Morningstar Ratings and expenses.
    • Morningstar offers additional lists beyond the "blend" categories, such as Core Stock Funds, Core Foreign Funds, and Core Medalist ETFs, for those looking to explore different definitions of "core."

In conclusion, the article provides a comprehensive guide for investors seeking to identify top-rated mutual funds and ETFs as long-term core holdings, with a focus on criteria, categories, and specific recommendations from Morningstar.

The Best Stock Funds for the Core of an Investment Portfolio (2024)
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