Nearly three years ago I wrote that I was going to shift my 401(k) from the menu of funds offered by my employer to a "brokerage window."

Today, I'm very glad that I made the change.

It's also easier and less expensive today than it was 3 years ago -- Fidelity has dropped the $100-a-year account fee (for my plan), brokerage commissions have continued to decline, and the number of exchange-traded funds (ETFs) has continued to increase.

I can also tell you that making such a move isn't for everyone.

At the end of August, Fidelity calculated the year-to-date return on my account at 9.8 percent. The trailing 12 month return was 14.1 percent. The three year annualized return, which I calculated because the Fido calculator is limited to 24 months, was 15.5 percent.

These returns compare, according to Morningstar, with 4.4 percent, 6.57 percent, and 9.0 percent for the "moderate allocation" or balanced fund average, respectively. The comparable figures for "world allocation" funds are 8.37 percent, 11.66 percent, and 15.0 percent, respectively. Either way, I'm a happy camper.

I made the change to reach two goals. First, I wanted to reduce "manager risk" -- the dreary tendency of portfolio managers to have periods of "hot hands" followed by periods of "cold hands." Second, I wanted to do what I advocate in this column--- reduce expenses by concentrating on index funds.

Today, for instance, you can build my "margarita portfolio" (1/3 each of domestic stocks, international stocks, and Treasury Inflation Protected Securities) by investing in two Fidelity index funds, Spartan Total Market (ticker: FSTMX, minimum investment $10,000) and Spartan International (ticker: FSIIX, minimum investment $10,000). These funds have annual expenses of only 10 basis points each. You can buy the iShares TIPS exchange traded fund (ticker: TIP) with an annual expense ratio of only 20 basis points. That means you can run the entire portfolio at an average cost of 13 basis points a year plus one or two commissions.

You can achieve additional asset class diversification by adding exchange traded funds that focus on Real Estate Investment Trusts (REITs). The Vanguard REIT index etf (ticker: VNQ) has an expense ratio of 12 basis points. You can make a broad commitment to energy, as I suggested in my book "The Coming Generational Storm" by investing in an energy etf such as Vanguard energy (ticker: VDE). This fund has an expense ratio of 26 basis points.

In other words, you can manage your 401(k) account for about 20 basis points a year plus a few commissions. Since many people can now trade for commissions of $10.95 or lower at Fidelity and still lower at pricing leaders such as USAA ($6.95), it's pretty easy to see that commissions are not a big deal.

Here's an example. Suppose your 401(k) account has $50,000 invested in relatively low cost mutual funds averaging 1.0 percent a year. Switching to index funds at 0.2 percent would save you 0.8 percent a year. You'd have to make 20 trades a year at a $20 commission rate before your self-directed portfolio would cost more than the managed option. As a practical matter, many older workers will have larger accounts and lower commission rates.

Should everyone do this?

No. Many people should pick a few funds and focus on adding new money.

There are two reasons for this. First, eliminating the manager risk of a mutual fund by having a self-directed account may be just another form of manager risk. Worse, the manager taking the risk is you.

Second, even if you limit your self-directed choices to three, four, or five index funds, you've got to pay attention and rebalance every once in a while -- particularly in 401(k) plans where you are adding new money regularly. Many people don't want to pay that much attention to their investments.