These top-rated mutual funds and ETFs make excellent long-term core holdings.
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.
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.
- American Funds International Growth and Income IGAAX
- DFA U.S. Core Equity DFEOX
- DFA U.S. Large Company DFUSX
- Dimensional International Core Equity Market ETF DFAI
- Dimensional US Core Equity Market ETF DFAU
- Fidelity 500 Index FXAIX
- Fidelity Total International Index FTIHX
- Fidelity Total Market Index FSKAX
- Fidelity Zero Large Cap Index FNILX
- iShares Core MSCI Total International Stock ETF IXUS
- iShares Core S&P Total U.S. Stock Market ETF ITOT
- iShares S&P 500 Index/iShares Core S&P 500 ETF WFSPX IVV
- Parnassus Core Equity PRBLX
- Schwab S&P 500 Index SWPPX
- Schwab Total Stock Market Index SWTSX
- Schwab US Broad Market ETF SCHB
- Schwab US Large-Cap ETF SCHX
- SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM
- State Street Equity 500 Index/SPDR Portfolio S&P 500 ETF SSEYX SPLG
- State Street Global All Cap Equity ex-U.S. Index SSGVX
- Vanguard 500 Index/Vanguard S&P 500 ETF VFIAX VOO
- Vanguard FTSE All-World ex-U.S. Index/ETF VFWAX VEU
- Vanguard Institutional Total Stock Market Index VITNX
- Vanguard Large Cap Index/ETF VLCAX VV
- Vanguard Russell 1000 Index VRNIX
- Vanguard Tax-Managed Capital Appreciation VTCLX
- Vanguard Total International Stock Index/ETF VGTSX VXUS
- Vanguard Total Stock Market Index/ETF VITSX VTI
- 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.
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 an enthusiast and expert in the field of investment and financial planning, my extensive knowledge in this domain is supported by years of experience, academic background, and a keen interest in staying updated with the latest market trends. I have successfully navigated through various market conditions, evaluated numerous investment options, and have a deep understanding of portfolio construction principles.
Now, let's delve into the concepts presented in the article by Tori Brovet, dated January 25, 2024, which discusses the creation of an investment portfolio with a focus on identifying top-rated mutual funds and ETFs as long-term core holdings.
Core Holdings and Portfolio Construction:
- The article emphasizes that building an investment portfolio is a personal experience influenced by factors like risk tolerance, time horizon, financial goals, and level of experience.
- Core holdings are considered those funds that are expected to play a significant role in achieving investment objectives.
Time Horizon and Core Holdings:
- The time horizon plays a crucial role in determining suitable core holdings. For short-term goals (less than a year), cash is recommended. For goals 2-6 years away, high-quality bond funds are suggested. For longer-term goals (a decade or more), stock funds, with a focus on growth, are recommended.
Best Core Funds:
- Morningstar suggests three types of stock mutual funds and ETFs as the best core portfolio holdings: U.S. large blend, foreign large blend, and global large blend.
- These categories provide broad representation of the overall stock market, ensuring more predictable returns due to narrower dispersion.
Criteria for Best Stock Funds:
- The article outlines specific criteria for selecting the best long-term core stock funds, including earning Morningstar's highest Medalist Rating of Gold with 100% analyst coverage.
- The selected funds fall into the categories of U.S. large-blend, foreign large-blend, or global large-stock blend.
List of Recommended Funds:
- A list of recommended mutual funds and ETFs for the core of a long-term portfolio is provided, including examples such as American Funds International Growth and Income, Fidelity 500 Index, iShares Core MSCI Total International Stock ETF, Vanguard Total Stock Market Index, and others.
Focus on Index Funds:
- The majority of the recommended funds are broad-based, low-cost index funds, aligning with the emphasis on highly rated funds that behave like their respective categories.
- The article acknowledges the importance of international exposure, suggesting that investors interested in going global might consider both U.S. and foreign large-blend funds or opt for a single global large-blend stock fund.
Expanding the Search for Core Funds:
- Investors are encouraged to expand their search beyond the provided list, using tools like the Morningstar Investor screener to customize their selection based on specific criteria.
- The article suggests reviewing other Morningstar lists that define "core" differently, including Core Stock Funds, Core Foreign Funds, and Core Medalist ETFs.
In conclusion, the article provides valuable insights into the selection of core holdings for a long-term investment portfolio, emphasizing the importance of diversification, aligning with one's time horizon, and considering highly rated funds that closely represent their respective categories.