20 of the Best Stock and Bond Funds for Long-Term Investing

Both stocks and bonds had a tough year in 2022, but Russel Kinnel, Morningstar’s director of manager research, says he feel pretty good about investing for the long term.

In a new blog post, Kinnel acknowledges that 2023 doesn’t look so good, not with more Federal Reserve rate hikes in the offing and a possible recession looming. But he notes that stocks appear cheap, and equity and bond yields are robust.

“A couple of years of sideways markets wouldn’t be so bad if fund investors can continue to bank yields of 2% to 8%, depending on the fund,” he writes.

According to Kinnel, Morningstar’s equity analysts at the start of 2022 had the U.S. market at a 6% premium. Today, it’s at a 15% discount. By market capitalization, small-caps are trading at a 23% discount, mid-caps at a 16% discount and large-caps at a 14% discount. 

“If we look at returns by index or fund category, we see value beating growth for one and three years, but growth modestly ahead over the longer time periods,” he writes. “So, the returns are suggesting that the prospects for value and growth are roughly similar, while the discount to fair value indicates that in large caps, at least, growth has greater potential.”

Kinnel’s Picks for 2023

There are plenty of good choices for your money in 2023,” Kinnel writes. “Investors who can buy in a bear market and tolerate short-term pain are often rewarded handsomely in future years.”

Kinnel grouped his fund picks for the current year and beyond by those that are bargains based on price/fair value, those that present special opportunities and those that produce income. 

He noted that investors can finally get decent income without taking big risks. In making his fund selections, he preferred the 12-month yield as opposed to the 30-day SEC yield. “The 12-month yield tells investors what a fund paid the past year. Because rates have spiked, the 30-day is more indicative of the portfolio yield today.”

See the gallery for Kinnel’s 20 fund picks for 2023.

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