A. Compared with some plans with very limited choices, it's a nice problem to have when you have too many choices in your 401k or 403b plan. There are two decisions you need to make in order to pick the right funds:
a. Determine your risk tolerance level
In stock market, risk and reward always go together. The higher the potential reward, the higher the potential risk. This means that historically, stocks funds have the record to delivering higher average return over time, but also have frequent, sudden, and sometimes huge declines. Short-term or intermediate-term bonds and money market funds are stable, in both return and risk.
Your first task is to determine what kind of balance you want to achieve in your portfolio that fits your risk tolerance level. We have developed an online tool to help you assess your risk tolerance level.
b. Decide which funds to pick
Once you know how much weight you want to give to stock funds and bond funds, your next step is to pick the best available funds in each category.
The principle is to pick low cost index funds with broad market exposures, because nobody has the crystal ball to tell you which sectors of the market will go up or down next. Over the long term, when the market goes up, you will grow with it. Remember, most actively managed funds can not even beat the market.