In 2015 the IRS raised the limits to $18,000 on most employer sponsored retirement plans, including 401(k), 403(b), TSP, and most 457 plans. (http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015)
I have some suggestions for those who want to make a decision on their own:
Step 1: Determine your risk appetite and your retirement horizon and objectives.
To figure out your risk appetite and retirement horizon you may need to work with an advisor or use automated questionnaires provided by your investment bank/platform. Here are three suggestions:
1) a questionnaire by Morningstar: https://mimadvisor.morningstar.com/public/ingrtqpage
It incorporates time horizon questions giving some perspective on risk appetite and retirement horizon.
2) a similar questionnaire provided by Vanguard https://retirementplans.vanguard.com/VGApp/pe/PubQuizActivity
3) I tried to use and thought it was reasonably accurate the following quiz developed by two university personal finance professors, Dr. Ruth Lytton at Virginia Tech and Dr. John Grable at the University of Georgia. http://njaes.rutgers.edu:8080/money/riskquiz/
Step 2: based on the above steps determine what types of investments are suitable for you and select funds based on their composition, historic performance, and expectations for the market. Here is a calculator recommended by the SEC: http://www.ipers.org/calcs/AssetAllocator.html
SEC’s beginner’s guide to asset allocation (http://www.sec.gov/investor/pubs/assetallocation.htm) notes that there is no single asset allocation model that is right for every financial goal. You'll need to use the one that is right for you. Some financial experts believe that determining your asset allocation is the most important decision that you'll make with respect to your investments - that it's even more important than the individual investments you buy. FINRA’s smart investing in 401k (http://www.finra.org/Investors/SmartInvesting/Retirement/Smart401kInvesting/Introduction/) provides excellent suggestions as well.
This brings us to Step 3: Once you figured out your ideal allocation chose funds in those profiles with the lowest total investment management expenses. This information is required and will be provided in summary section for each fund under performance data. This information is often presented as a percentage or as a dollar amount per $1000. And while $8 to $20 per $1000 may not appear as much it is! You will usually have choices that are identical in composition but some will have lower fees. Why would you pay $180 to $360 annually if you can pay as little as $50 for getting the same level of management and diversification. And while many of us may believe you get what you paid for, you’ll see that historic performance numbers of those funds show otherwise.
As an example, two funds Scout Mid Cap Fund (SMCF) and Vanguard Extended Market Index Investor Fund (VEMIF) with the same bench mark Russel Midcap Index. SMCF has an expense fee of 1.07% or $10.70 per $1000 and 3 year return of 18.67%. Compared to VEMIF with expense fee of 0.24% or $2.40 per $1000 and a 3 year return of 23.28%. Fund with a much lower expense ration outperformed the more expensive fund.
See Warren Buffet's famous perspective on fund management fees http://pension360.org/buffet-is-winning-his-six-year-old-bet-against-hedge-funds/
