This year I did almost all of my holiday shopping online. From the comfort of my couch, with football on in the background, I bought presents for my friends and family. I got to skip the stores and the crowds, not to mention the uncertainty of we don’t have that item at this location, but I see one at a location 45 miles from here if you’d like to have them save it. Plus, I was able to conduct extensive background checks on all my gifts.
It was intense. Actually, it was just too much.
There were too many choices.
Case in point: I chose one American Girl dress—size 18”—for my niece, and Amazon suggested five other items she might also like, including a dress in another size. Suddenly the dress didn't look so appealing, and I wondered whether I’d selected the correct size in the first place. I scoured the reviews for each of the other items my niece could like. I checked alternate websites to see whether there were any price differences. I looked on the homepage of each company to see whether I appreciated their corporate philosophy. And then I realized that the seven-year-old girl in question will probably like the dress I originally selected.
On the other hand, last year I went to Target without any ideas in mind for my niece. I wandered the aisles aimlessly. I followed other shoppers through the toys in an effort to ascertain what’s in with the elementary school crowd. In the end, I succumbed to a pink and purple kids’ karaoke machine. Her parents will never forgive me.
I’m here to tell you that having many, many choices isn't always a good thing.
You probably know where I’m going with this: selecting funds for your 401(k) plan can be overwhelming, particularly if your company offers a large number of funds or you’re using a brokerage option.
If your company offers 10 to 20 funds from across asset classes, you should figure out which fit into your asset class allocation then research each of those funds to decide which is most suitable. You’ll probably find yourself researching two or three funds for each asset class, so you needn't spend hours upon hours. You needn't listen to suggestions from your uncle, your neighbor, your co-worker or your high school friend. You shouldn't try to jump into a fund that’s flying high. I’d suggest starting by comparing just a few factors: fees, performance relative to peers, the fund’s manager and fund company track record and adherence to the fund’s stated investment goals.
Much like my holiday shopping, you can streamline your fund selection by minimizing your choices and cutting out peripheral information. Consider skipping the brokerage option unless you have access to professional retirement advice that allows you to avoid the stress and time associated with researching the thousands of available funds, or unless you’re the type of investor that loves the thrill of research.
It’s important to spend time on retirement planning, but you can still keep it simple.
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.