Watch This Before Rebalancing Your Investment Portfolio!
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- เผยแพร่เมื่อ 27 ก.ย. 2024
- Watch This Before Rebalancing Your Investment Portfolio!
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Yes we want more nerdy and in the weeds content. I love your guys' content but lets be honest, after watching for a couple years, most episodes dont have anything new, I already know what you guys are going to say, and there's a lot of "topic x in 202x" rehashable vids. So yes yes please make more in depth and advanced videos with new information and ideas. Id love to see an episode on factor investing (Fama & French), you guys talk about target dates and total market/sp500 in passing but rarely talk in more detail about portfolio construction than that. Love to hear you introduce value tilting to your audience. Ben felix and his rational reminder podcast really goes in deep into the nerd stuff and I'd love if you guys did as well. Financial mutants deserve to not have their hands held, they can handle the advanced stuff. Best regards.
I second the vote for a Fama & French episode!
Agree . appreciate all the advice starting my financial journey. But after few years seems like same discussion every video.
Yes, I absolutely love you guys as well ! But now after 2 or 3 years I find myself finishing your sentences and adding a layer of depth could really be valuable to your financial mutants. Keep up the good work!
They actually used to have pretty technical stuff, especially on estate things. but I think they pulled back on it to try and keep info in house to make a buck. They had an awesome episode on their "FOO" but they pulled it when they released their for sale class. Was quite disheartened.
Yes, absolutely. It would be great to see more in-depth videos.
Isn’t your target audience “financial mutants,” after all?
We invest a consistent amount monthly. This allows us to “re-balance” as needed by adding funds to the asset classes that are falling below their target allocations
But doesn't this void the potential for tax loss harvesting?
@@bzrkr842 no; these are not mutually-exclusive activities.
@@kesslerrb I suppose you would need to select which tax lots to use however because some of your newly invested funds wont be 1 year old
@@DevinSmith1486 It's not a year (that's for short or long-term capital gains taxes. The brokerage will wash sale buys/sells over 60 days (ie, purchases made 30 days before or after a sale will wash). Otherwise, brokerages are typically defaulted to FIFO. Any sale will look to the first shares purchased for cost basis/time.
This could be an interesting case study, but it might be a lot of work. Try testing these scenarios: withdraw from total balanced account vs withdrawal from equities only when they out perform and then rebalance and withdrawal from bonds only when they outperform and DON'T rebalance. If bonds are outperforming then it's likely markets are down. If you're only withdrawing from bonds when they outperform, then you're not selling stocks when they're down. I dont know, I might be overcomplicating things.
What were the assumptions made during the Trina/Tina example? I specifically would like to know the retirement withdrawal strategy and how often the accounts were rebalanced in that example.
I'm going to give this a go. Used to listen a lot, but then content got very same old, same old. We want the info that we can use to make a difference in our portfolios and our financial lives. You'll still get your clients down the road, but many (such as myself) likely won't ever be, so for us it's seek the info elsewhere or tune into you. Just fwiw, I'm sure you guys don't really care about my opinion. Hope you guys have a great day!
Do you recommend just once annually? Is there a certain month to rebalance, or is it best to pick a random time of year and stick to that?
OR - Consider Dynamic rebalancing where you rebalance only when positions are more than a certain percent out of balance.
I just discovered this show and have been binge watching for several days. We've always rebalanced, but now that my husband is retiring from his main job, but starting a part-time encore job, we will be making more than we ever have been--because his pension will start. So, since our needs are covered by forced income, now we're just putting everthing in the S&P in our IRAs. Is this a bad move? Also, he's 67, and will probably be working until he's 70+. I'd also love to see a show on Roth conversions to avoid RMDs while still working.
That chart at 26:30 can be interpreted different ways. You say the Rebalanced Annually out performs Never Rebalanced from 2000 to 2022 (which is correct), but Never Rebalanced notably out performs Rebalanced Annually from 2009 to 2023. You didn't point this out. So, as expected, it's a mixed bag that is heavily dependent on chance of how the market performs after each annual rebalance. And this simple example uses all the same investments at the same ratio, so rebalancing into different options and/or at different ratios would have a much larger impact on the return than this steady annual rebalance chart shows.
This episode may be just a 1st step to discuss the topic, but I see this as a missed opportunity as you could discuss how to rebalance your account at different ratios based on the owner's speculation on how this year's market will fair. I.E.: switch to 40/60 allocation ratio if you fear a bear market this year, or switch to 80/20 allocation ratio if you anticipate a bull market this year, or hold the 60/40 line if you expect an average market. How much you swing your rebalance would be based on how much risk the owner is willing to take in their own guess. I'm willing to do a 10%-15% swing in each annual rebalance, but others may be more or less willing to adjust their allocation ratio at each annual rebalance (or at some other rebalance frequency).
You can take a donkey to river but can never force it to drink -the money guys cant do the thinking for everybody , otherwise they are fantastic!
Changing your target allocation based on what you think the market will do sounds a lot like timing the market, which is nearly impossible to do correctly.
@@jdmulloy Agreed. But the whole retirement account system is investment-based anyway. You already manage your allocation in accordance to your own understanding on how the market will act at a risk level you are willing to accept. Making changes to your allocation should already factor in the market's timing (at lower priority/weight to your retirement schedule).
The problem with Target Retirement Funds is they don't account for the fact that the bonds they hold don't keep you safe against bad stock years when it's also a high inflation year. This happened recently as well..
It's not inflation it's when we have huge interest rates rate swings which happens rarely. Gradual rate changes up and down over time is just fine for bonds
If you're still contributing you could do some amount of maintaining balance by adjusting what you're buying. Although I'm guessing that gets harder to do the larger the account is compared with your contributions. The last few years I've been doing roth IRAs in addition to my substantial 401k assets for me and my wife and I've been buying based on what's underweight compared with my target allocation. Of course rebalancing inside retirements is much easier since you don't have to deal with capital gains taxes.
Us too. We decided to change our allocation just over a year ago, to get more international and small cap U.S. exposure. We didn't sell any of our large cap U.S. holdings, but simply bought the others every paycheck. It took about 9 months to get balanced. Now, most of our money is automatic, but we focus new contributions to my Roth and our taxable account (3rd bucket) into the underperformers if needed, to keep things balanced.
Honestly the returns of those target date funds are bad compared to just an S&P fund. Even the funds 40+ years out struggle to break 10% most of the time
No need for bonds in any portfolio imo. Common stocks always will outperform over longer periods of time.
If you can stomach it and afford the larger swings downward, then yes, you're right. I think a lot of DIYers are hoping to pump so much into equities, their nest egg will grow so large, that their withdrawal rate will become insignificant in their later years. They won't have to worry about 50% down years. For people expecting to have withdrawal rates say over 3% though, would probably want to see more stability in their accounts as they approach retirement and live in retirement.
Why keep playing when you've won the game?
The whole video went over your head. Why would a 70 year old want a all s&p 500 portfolio? Once a 30-50% crash happens their retirement is destroyed. That's a dangerous comment.
Are there any tools like spreadsheets , apps, or websites that let you input your holdings , and then tells you what needs to be changed to balance your portfolio ?
A tool like that would be great! I have multiple investments at multiple brokerages which make it harder to know how it’s balanced as a whole.
I called my retirement company because I saw I was sitting at an aggressive risk level (age 47) and they recommended I be at a moderately aggressive risk level. I spoke with a man for about an hour and while he had the soothing southern accent, I'm not clear about his advice. I have only life cycle funds in my 401k (150G) and Roth IRA (10G). He suggested I move all of my funds into large cap, mid cap, international, real estate, Vanguard etc. "for diversification." Why would anyone be advised to leave a life cycle fund which I thought was diversified and also self-rebalancing?
Good question!
Fees!
Your 47 be aggressive , the market will be up in 13 years or more
@@kckuc310 in general I agree but you don't know if he will panic or not in downturn.
@@aaront936 that totally depends on what exact fund and this guys risk tolerance
Bo looking like a young Brian again 😂 love you two
100% equity as well lol
No need to rebalance when it's always at 100 :P
What about domestic vs international?
between stocks?
I bought apple stock back in 2011, it was my only investment for a while but now I'm trying to retire early and have been trying to "rebalancing" by only buying total stock market mutual funds. I am unsure if I should sell it (once I'm retired) to reduce volatility of my portfolio or if I should keep it until they stop performing 🤔
Think it really depends on what percentage it is of your portfolio. Maybe it’s something you can slowly offload (bc of tax implications of selling) if you feel it’s too much of your portfolio
I am 24 and make 105k/year. I max out my roth 403b contributions, and I currently invest another $1000/month into a brokerage vanguard ETF account. Is it beneficial to start contributing to my pretax option in my 403b as well? Or should I stick to straight roth and brokerage contributions? It appears that the capital gains tax rate is more beneficial than the income tax rate, so pre-tax contributions would not make sense if I max it out anyways?
If I hypothetically wanted to pull out 80k a year at retirement, based on todays numbers and rates...I could pull 40k out of my brokerage account and get taxed at 0% since its a long term capital gain, then pull the other 40k out of my roth and literally pay zero taxes for the year? Am I missing something huge or is this correct?
@@GreatCornholio883 Standard deduction is $12,950, probably more when you're retired. You would want to be able to pull at least this amount from taxable.
Yes! 100% on board with more classic Money Guy content.
Hey Brian and Preston! A question on student loans. I have a few different student loans currently worth $80k, around half is at 2.85% and the other half are federal around 3.6% (currently frozen). Does it make sense to pay these off earlier than needed or should I draw the notes out to their full term?
For background, I just turned 24, make $90k and am currently living at home. I have completed an emergency fund, max out my Roth IRA and contribute 7% to my traditional 401k (25% saving/investing rate). I would like to move out within the next few months, but this would hinder my ability to pay off my loans early. I’d prefer to get rid of this debt as it can feel like a weight on my shoulders, however I know it may not make mathematical sense to overpay. Thoughts?
Pay off the student loan wont regret it in the long run
Churn the portfolio for tax loss harvesting and you get hit with bid/ask spreads. How much does that cost?
It depends how liquid an investment is. Usually bid/ask spreads for popular items are $0.01/share. So for 1000 shares it's $20 to tax lost harvest, $10 coming and going.
Its worse here, our economy is like a flailing fish, fighting for its life. The normal state of the U.S. economy is actually very bad. Because of this it goes into convulsive spasms fighting to grow any way it can out of desperation. Tricks, gimmicks, rule changes try to stimulate the economy and prevent it from falling but they only bring temporary relief to people since, when you factor in inflation we are declining.
People believe their currency has the worth it does because they have no other option. Even in a hyperinflationary environment, individuals must continue to use their hyperinflationary currency since they likely have minimal access to other currencies or gold/silver coins.
Inflation is gradually going to become part of us and due to that fact any money you keep in cash or in a low-interest account declines in value each year. Investing is the only way to make your money grow and unless you have an exceptionally high income, investing is the only way most people will ever have enough money to retire.
My CFA NICOLE ANASTASIA PLUMLEE a renowned figure in her line of work. I recommend researching her credentials further... She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
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These guys are trying to time the market by relying on mean reversion
I'm with Dave Ramsey on this, bond ETFs and mutual funds are trash. Yield is way up and still losing money on every time frame in the last 2 years.
I"ll do I-bonds, I'll do specific bonds, not touching ETF or mutual funds for bonds.... they act more like market place giveaways for the last 15 years.
Current bonds are down because in a rising interest rate environment, the bonds coming out tomorrow will be better, causing the current bonds to lose value. Once interest rates level out and start to go down, the current bonds then will rise in value because they will be better than future bonds.
Just buy 90% VT 10% BNDW & ur done
100% in equity 100% of the time. Bonds and other low interest investments suck. get a good side hustle for retirement to deal with downturns if necessary. Target retirement funds have shit returns. Then again, I do not plan to ever retire. I wont rely on my retirement investments. I want them to simply keep growing.
or just hold extra cash in retirement
@@robby95036 The average length of a recession is 18 months, so keeping 18-24 months of expenses in low risk investments makes some sense to me. Although I'm pretty sure that just keeping it invested, and pulling out 3-4% annually (even in a down market) will yield higher returns in the end.
@@Joenzinator yes but you have to have some cash. When you’re working its 3-6 months… it needs to be more when you retire.
@@aaront936 Right, I was thinking ~$150k in high-yield savings could make sense when retired.
@@aaront936 Well, by the time I retire that should be a small enough percentage of my net worth it won't matter. I could light it on fire and not care lol
Always love MG content. But I would have liked to see how friction costs from rebalancing (buying/selling/Fin Advisor fees) factor into all of this movement for the long term. Compounding interest can significantly work against you with those costs.
In order to rebalance I will need to transition out of my target date funds. How do you best transition out of them before retirement?
How should the USA solve the debt problem? Social security, Medicare, Medicaid?
Fire biden.
I have an issue with the target date retirement funds. They normally have a much lower rate of return than other funds that you can be invested in. So I don't see why you were trying to build wealth, what the advantages of being in one of them is, especially if you're younger
Target date funds are easy (only two decisions), they provide diversification (which as you mentioned, reduces returns, but also reduces losses). From March of 2009-2021, US stocks have been best. A target date retirement fund for a young person would have about 10% in cash/bonds, about 50% U.S. stocks and 40% international stocks. If U.S. stocks are currently the best, then only half your money is invested optimally. But, that's not always the case. In prior years/decades, either international stocks have been best, or bonds (1980s), or even cash any given year (2022). If you think you know what will be best next year, then you're making educated guesses/speculating/timing the economy (sector timing).
@@Lucky008aau If you look at the rates of return target date requirement funds Just don't do as good as a lot of other funds. There's several funds that I'm invested in that have had over 12% average yearly returns for 50 plus years. Target date Retirement funds don't. If that's what you want to put your money in cuz you think it works best that's fine. I'm just pointing out there is better options
@@b.m.4066 I don't put my money in them. I'm saying they are easy for those you don't like the work of investing. They mitigate risk and adjust allocation as you get older. Because they are so diversified among different asset classes, there's no way they can beat an equity fund over the long-term. Some people like to turn on cruise control and cruise in the slow lane. Others like to go 10-15 over, zig zag through traffic, and risk getting a ticket. Both will get to their destination at some point. Most speeders will get there sooner, but some will get pulled over and come last. Those cruising will have a more accurate and more guaranteed time of arrival. It depends what you want and who you are.
@@b.m.4066not a fan on target funds you not off by what you say neither
Does a 100% SP500 portfolio need to be rebalanced?