Which Mutual Fund Company Is Best For Your IRA?

2008 March 28

I often hear people ask “Which mutual fund company should I open my IRA with?” There are many choices, but I’m going to narrow it down to three of what I believe are the best mutual fund companies out there. Some companies not on the list such as Schwab or American Funds are also respectable choices, but in my opinion the following three are by far the best mutual fund families.  I also highly recommend signing up for a free Morningstar membership for additional, in-depth research once you’ve finished your initial overview.  You can find out pretty much anything you’d ever want to know about a particular mutual fund or mutual fund company over at Morningstar. Without further ado, on to my list of the best IRA companies!

Top Mutual Fund Companies

fidelity investments logo

Fidelity Investments is a venerable mutual fund company first popularized by a slew of super-star fund managers like Peter Lynch who achieved incredible returns year after year. While Fidelity no longer has a star manager of Lynch proportions, they do have a solid and deep research division and a slew of average-priced actively-managed funds in virtually ever stock and bond market sector you could imagine. Fidelity does have a few cheap index funds to compete with Vanguard, but they are limited to a Total Stock Market Index Fund, Extended Market Index Fund, Bond Market Index Fund, and an EAFE Foreign Index Fund. Then again, that’s really all you need if you want to keep it simple. Their Fidelity Freedom (target retirement) Funds are mediocre at best. Similarly, you would probably be best off completely ignoring their multitude of narrowly-focused sector funds. All in all, Fidelity is an above-average choice, especially if you keep a close eye on costs, which aren’t always low here.

Avg Expense Ratios
Domestic Stock: 1.27%
International Stock: 1.48%
Municipal Bond: 0.72%
Taxable Bond: 0.92%

Min Investment: $2,500

Source: Morningstar

t rowe price logo

T Rowe Price runs a well-rounded line-up of mutual funds with below-average expenses. T Rowe has an established culture of controlling risk, and their funds tend to be less volatile than the category average. They are best known for their equity fund line-up; however, they also have a solid stable of fixed-income offerings, including a good, inexpensive, and unhedged international bond fund, which are difficult to find. The star attraction here are the Target Retirement Funds, which tend to be more aggressive than comparable retirement funds at other fund shops as they maintain a significant equity stake well into old-age. T Rowe also allows you to open an IRA with just $50 up-front so long as you promise to invest $50 in the account every month. This gives them a huge advantage over their competitors when it comes to small investors, since most other fund companies have minimums of at least a few thousand dollars to get started. If you don’t have much money to invest but want to start saving regularly, T Rowe Price is probably your best bet.

Disclaimer: I own stock in T Rowe Price.

Avg Expense Ratios
Domestic Stock: 0.91%
International Stock: 1.03%
Municipal Bond: 0.56%
Taxable Bond: 0.71%

Min Investment: $2,500

Source: Morningstar

vanguard logo

Vanguard appears on almost every list of top mutual fund companies.  In my opinion it is the “best of” the best mutual fund companies and is where I hold virtually all of my mutual fund assets outside of my company-sponsored 401k. When I leave, I will undoubtedly roll over my 401k to an IRA with Vanguard, just like I did last time. Why do I like Vanguard so much? It’s cheap. Not only does it offer a wide variety of index funds to choose from, but even their excellent actively-managed funds are dirt-cheap compared to the competition. Because Vanguard is a mutually-owned company (that is, they are owned by their fund holders), they can pass on savings from economies of scale directly to their fund investors. Because of this, I have much more confidence Vanguard won’t be tempted to screw me in the name of profits like many other fund companies might be. Because of all this and the fact that I’m an index-fund-fanatic, I would highly suggest to almost everybody that they open their IRA with Vanguard. The one exception would be those who have limited funds to invest, in which case T Rowe Price would be the best choice since they allow $50 initial investments.  It’s no coincidence Vanguard funds routinely appear in my own (admittedly subjective) “best mutual funds” lists.

Avg Expense Ratios
Domestic Stock: 0.27%
International Stock: 0.25%
Municipal Bond: 0.12%
Taxable Bond: 0.15%

Min Investment: $1,000 for target retirement funds, $3,000 for most others.

Most of the statistics in this article were collected using Morningstar. Sign up for a free Morningstar account for access to a variety of portfolio tools and a plethora of information on almost any mutual fund or ETF in existence. Did I mention it’s free?

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11 Responses
  1. 2008 November 13

    I also found Vanguard to have the best variety of options for ROTH IRAs , with the least possible annual fees.

  2. 2009 April 14
    Beth Steeve permalink

    The three you rank highest are no-load funds. That makes their expenses look good, but add an advisor fee to anyone who doesn’t want to “go it alone” and it is not an equal comparison. Who are you gearing this investment to?

  3. 2009 April 30
    nima permalink

    is pulinure a honetly company for investing?

  4. 2010 April 14
    TRP Emp. permalink

    The one thing that I would add to this is that T. Rowe Price IRA minimum investment amount is $1000. Once this threshold has been met, the $50 per month is no longer necessary.

  5. 2010 September 27
    Juan permalink

    I rolled over all my old 401k’s into a T. Rowe Price IRA. When I left an employer a few years ago I was prompted to move the funds out of their 401k because I simply did not trust the employer. I had prior experience with Fidelity but was not happy with their fees. Years before my mom had a 401k with her employer at T. Rowe Price. They seemed to be a disciplined company with responsible management. At least I never heard anything bad about them. So I took the plunge, opened a rollover IRA at T. Rowe Price and moved all my money into it. So far I have been happy with the decision. Because of the amount I was moving in to the IRA I also avoided the maintenance fees with the account. So all things considered it has been a good move. I have considered moving my money to Vanguard a few times and even to Schwab but each time I keep coming back to the stability and reputation of T. Rowe Price. It matters to me that my fund company run a clean business. I want them to put their investors interest above their own and I don’t want them involved in any questionable activities. As long as T. Rowe Price makes money for me and runs the funds in a responsible manner I will remain with them.

  6. 2010 October 19

    I am a high school student at Carroll in Indiana and I would like to know what exactly is a ROTH IRA? I’m not entirely sure and most of the credible sources to find out have been blocked, I’d really appreciate it if someone would please explain.

  7. 2010 October 25
    Juan permalink

    Sky Bear -

    A Roth IRA is an individual retirement account where the deposits into the account are made with money that has already been taxed. The dividends and growth of the asset (a fancy word for money) in the account is tax free so when you retire you can withdraw money from a Roth IRA without paying a penny to uncle Sam. I do not have a roth ira. I own a traditional ira account with T. Rowe Price. The money I put into an account like this comes from my bi-weekly paycheck *before* taxes are taken out. Every pay period a fixed amount of dollars are deducted from my earnings and deposited into a 401k account sponsored by my employer. Then the taxes I owe the US government are computed on the remaining money in my payroll check. Uncle Sam gets his cut and the rest is mine. In a 401k or a traditional IRA the money deposited in the account is done so *before* federal and/or state taxes are taken out. However, when I retire and start to withdraw money from this type of an account uncle Sam will charge me taxes on it. A Roth IRA basically lets you take money that you have already paid income taxes on and use it to invest tax free. Meaning that any earnings you make from your investment is not taxable. However, there are still strict regulations you have to abide by regarding the disposition of this money so you have to do your homework before opening one of these accounts. Any money you put in generally is not available before age 59.5 without taking a stiff penalty from the IRS.

  8. 2010 December 4

    I guess I’m a bit confused. Why would the focus be on any one fund family vs. on a custodian that offers easy access to a full array of funds from various companies plus stocks, bonds, ETFs, etc.? On that basis Schwab, Fidelity, and TD all qualify nicely as does Vanguard to a point. No one fund family offers top funds in all asset classes, this is the beauty of a custodian with a full range of choices.

  9. 2010 December 5

    Because most people benefit from keeping things simple. Having too much choice increases the odds of somebody either making no choice or a poor choice. Having all that choice is great if you know what you’re doing, but bad if you don’t. And most people don’t, so…

    Now if you’re an advisor with clients with a variety of different needs, this post doesn’t really apply to you.

  10. 2011 May 19

    Thank you for your analysis and opinion. My vote is for Vanguard!

  11. 2012 July 7

    I am a big fan of Fidelity. With thousands of no load no fee funds to chose from it is a no brainer.
    I would like to add Most of the companies listed have large minimums. If you are just starting out you can start investing with Gabelli. True you are restricted to their funds but they have some nice no load funds. For $250 in an IRA you can open an account.

Comments are closed.