a. Get a list of the fees for each fund: Your fiduciary is required to disclose the fees associated with the funds they are offering you. It’s usually a page or two showing each fund and its fee. 

b. Get a list of the performance of each fund: We all know that past performance is not an indicator of future performance, right? It’s true…and it’s also one more piece of information we can use as we make these decisions. As with fund fees, your fiduciary will be able to provide you with a sheet listing each fund and its performance over different periods of time (such as one year, five years, 10 years, and/or since the fund was started). For me, performance is secondary, and I only look at the longest term of performance listed foreach fund. 

c. Then analyze: Hopefully your list of funds is grouped into categories like US Large Cap, US Small- and Mid-Cap, and International stocks. If not, the name may help you or you can look the funds up online (try www.morningstar.com) and categorize them yourself.

d. So categorize your funds first. 

e. Then choose the percentage you are going to put into each category. If you’re OK with volatility, you can just put 100% of your contributions into the US Large Cap fund, or 80% in US Large Cap, and the rest in US Small- and Mid-Cap and/or International and Emerging Markets. If you want lower volatility (and thus slightly lower returns), put 80% in stock funds and 20% in bond funds. These are only sample allocations, which I hope is obvious! You can do 70% stocks/30% bonds or 60%/40% or anything you want. I would just exhort you to take on as much stock as you can without feeling sick to your stomach every night. If you don’t, you may not keep up with taxes and inflation over the long term. 

f. Then look at the fees and circle the fund in each category with the lowest fee. 

g. Choose that fund unless its 10-year (or longest-term) performance is lower than another fund in that category. If the cheaper fund’s performance is only .02% lower and the other fund costs .5% more, choose the cheaper fund. Just make sure that if you’re picking a more expensive fund, that choice is justified by better future performance over the longest term, and the better performance may cover the higher fee.

h. A word about index funds: as you do this exercise you may notice that some of the funds are A LOT less expensive than others. These are index funds, which means the fund is built to simply track a market index like the S&P 500 or the MSCI International Index. Index funds are subject to the same general risks as the stocks they contain. 

i. No one is actively managing these funds, making tweaks due to market factors or researching the companies or bonds. That’s why they are so inexpensive: it takes smart people to actively manage a fund and do all that work, and that costs money. 

ii. You may find that the index funds in your plan beat the actively-managed, higher-fee funds when you do the analysis above. That is perfectly OK. Don’t be afraid of the index fund.