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How to Evaluate Your Retirement Funds in 15 Minutes or Less

Financial Planning

Do you know how hard your money worked for you in 2013?

If not, it’s time to do a 15-minute checkup of your investments and make some plans for 2014.

Step 1: Check your performance

The first thing to do is pull out recent statements for all your investments, including retirement plans such as IRAs and 401(k)’s, or check them online.

If you don’t have a recent paper statement or online access to your accounts, you may have to wait until the year-end statement arrives in the mail.

But let’s assume you have your statements in front of you. The important number you are searching for is your fund performance.

Once you find that number, your next question should be “Is that good?”

To find an answer, you’ll need to compare your funds with indexes that include similar investments.

For example, if your funds are invested in large-company stocks, you might compare your performance with the S&P 500. (As I write this, it’s up more than 28 percent this year!)

If you have a small cap fund, look to the Russell 2000 for guidance. For more tech-heavy investments, the Nasdaq might be the best comparison.

I know it would be easier if I could simply tell you that if you hit a certain percentage, your investments had a great year.

However, anyone who boils your fund performance down to such basic terms is doing you a disservice. You need to have an apples-to-apples comparison.

That means comparing bond funds to bond funds, balanced funds to balanced funds and so on.

In addition to indexes, you can also see how your funds performed by comparing them with funds offered by well-established fund companies like TD Ameritrade, Vanguard, American Funds or Fidelity.

Don’t freak if your fund is a few percentage points off the returns offered by indexes or similar funds, but if your large-cap fund earned 5 percent this year when the S&P 500 earned 28 percent, that should be a red flag.

Step 2: Review the fees

After you check out fund performance, the next step is checking what you paid to achieve it. In other words, fees.

If you’re investing in mutual funds, this should be listed on your statements as the expense ratio.

If for some reason you don’t find it on your 401(k) paperwork, you may need to call your employer’s HR office and ask.

Obviously, lower fees are better. Some mutual funds have expense ratios as low as 0.10 percent. Others might have combined fees that top 3 percent.

Look at the fund families in the companies mentioned above for comparisons.

With so many excellent, low-cost investment choices available today, there is little reason to have a fund with more than a 1 percent expense ratio.

Step 3: Rebalance your assets

The final step is to rebalance your portfolio. Over time, as certain funds underperform or outperform, your asset allocation may become skewed.

For example, because stocks did so well in 2013, you may have more of your savings in stocks than you’re now comfortable with.

Why is that important?

Because the type of investments you have is directly related to the amount of risk you’re taking.

Stocks often earn more than bonds or money market funds – they certainly have this year – but if the market crashes, you could lose big.

Ideally, you should have a balance of stocks, bonds and other investments that are based upon your individual goals.

If you are 22 and saving for retirement, you can probably be stock-heavy since you have time to weather the market’s ups and downs.

But if you’re 60, you’ll want more of your money in bonds and money market funds so you don’t risk wiping out your life savings as you approach retirement.

When you opened your investment account, you may have gotten guidance on the right asset allocation for your situation. Now is the time to rebalance your investments so they reflect that advice.

Bottom line

Make an investment review part of your year-end planning.

Set 15 minutes aside, follow these three easy steps and you’ll feel a lot more confident that your money is ready to meet the new year.

How to Evaluate Your Retirement Fund in 15 Minutes or Less” was provided by 


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