Financial Company called me today

[street]

I'm assigned an adviser and she calls every now and then. I pay nothing for her advise and will help me with transactions, advise etc. with no fees, no charges.

She told me my equity funds have increased 10% from my original plan over the last three years. So on this one portfolio I'm 73/27 ratio. She was wondering if I wanted to rebalance and if not if I want a automatic rebalance if it gets to high and want to stay in my perimeters.

My question is this. Would it be a wise idea for an automatic rebalance of my account? If I want 70% equities it would have to hit 75% before it would automatically rebalance. I also plan never to have too use this money so I want it to grow if at all possible.

What is your thoughts?

 

[SecondCor521]

If it is a taxable account, I would not set up anything automatic. I want control over when I create taxable events so I can manage my income taxes.

If it is not a taxable account and there is no cost to do so, I would consider it.

 

[street]

SecondCor521 >> it is an IRA no taxes will be paid until RMD. I asked about fees or charges to have this done, and she said there is no charge for those services. The company is Homestead Funds and have been very good in helping and giving advise.

 

[SecondCor521]

Well then, I would consider it something that would be OK to do.

I personally don't do anything like that, although I don't think I really have a good reason not to. Probably because I still want to monitor things and make the AA moves myself as somewhat of a control freak.

 

[swakyaby]

I do have that automatic rebalancing service with DH’s IRA at T.RowePrice. Every quarter, they rebalance his 2 mutual funds to the ratios we specified. There is no cost, and I don’t see any downside.

 

[pb4uski]

..... I also plan never to have too use this money so I want it to grow if at all possible.

What is your thoughts?

If you want it to grow why not let it ride? If you never use this money what happens to it? Kids or other heirs or charities?

I'm likely to increase my stock allocation between now and the end because I doubt that I'll need it or spend it all and my heirs are younger and would be 100/0 or 90/10 so letting the stock allocation creep up makes sense to be because to some extent I am investing it for them as much as me.

 

[OldShooter]

This is pretty good service IMO. What firm?

 

[jpeter1093]

This is pretty good service IMO. What firm?

The OP said above "The company is Homestead Funds and have been very good in helping and giving advise."

 

[mystang52]

If I want 70% equities it would have to hit 75% before it would automatically rebalance. I also plan never to have too use this money so I want it to grow if at all possible.

What is your thoughts?

You wanted a 70% equity portion. That being the case, it sure seems you should sign on to the [free] automatic rebalancing. The portfolio will definitely grow as the market goes up. Markets also go down, though, which is why we all choose our own equities/bonds ratio. I suggest you accept this service. Keep in mind if the market tanks, your ratio may go the other way and then rebalancing will mean buying equities in a down market.

 

[street]

Great advise and again I thank you for your knowledge. So, does anyone see any negatives to rebalancing verses just letting it ride like I have done through out my 40 years of investing?

This company has been top notch and have helped me often in decisions and questions on my investments. If I do rebalance she said to call her and she would walk me through the processes on line on the web site. I might do it today if I can get a little more confidence builder from you folks. Lol

 

[audreyh1]

If you plan never to touch the funds I see no downside to simply letting it ride.

 

[braumeister]

FWIW, Homestead Funds seem to have a relatively high expense ratio compared to similar funds elsewhere. I would think about whether that's the best place for the money.

 

[street]

^ I would imagine over time when letting it just ride my equity funds would increase, is that true? I been wanting to increase them but I have had good luck not doing anything so I have let them rise and fall on their own.

Yes, I want it to grow for charity and heirs. So, to get the most out of these funds, letting it ride my be the best advise to max my growth.

 

[street]

FWIW, Homestead Funds seem to have a relatively high expense ratio compared to similar funds elsewhere. I would think about whether that's the best place for the money.

Cheaper then some and of course higher then a couple companys that most use here. I have been with them and feel comfortable with them and there are things they do that don't cost so I will stay with them with this account.

 

[pb4uski]

^ I would imagine over time when letting it just ride my equity funds would increase, is that true? I been wanting to increase them but I have had good luck not doing anything so I have let them rise and fall on their own.

Yes, I want it to grow for charity and heirs. So, to get the most out of these funds, letting it ride my be the best advise to max my growth.

That is what I would think... if you don't need the money let it ride and it is most likely that there will be more for your heirs and charities... why don't you talk over that angle with your FA and see what she thinks?

 

[street]

That is what I would think... if you don't need the money let it ride and it is most likely that there will be more for your heirs and charities... why don't you talk over that angle with your FA and see what she thinks?

Thanks for your advise, I do appreciate your knowledge. They seem to want me to totally understand that I could loose a lot of money if things went south. My impression is she watches out for me and gives advise to make sure I understand.

So, pb4uski if I let thing just ride will my equity funds most likely keep going up in percentage? I'm also talking very long term commitment.

 

[pb4uski]

I think it is well established that over the long run that equities outperform fixed income.... the ride might be more bumpy, but the returns are better. So therefore, a rising equity portfolio would reasonably be expected to outperform a 70/30 portfolio that is rebalanced annually.

Ask her the same question and see what she says.

Obviously, future results could differ from past results and it may not work out, in which case heirs and charities will get less than what they would get with 70/30 rebalanced... but if that happens they will never know that you took an educated gamble with "their" money that didn't work out.... same if you let it ride and it works out... all they'll know is that they are getting a bundle of moolah.

 

[street]

Thanks Sir, I appreciate that and remember I know very little about financing and like I said before if not for the one thing I did right (save) I would be still working today. Lol

If I would have had this site 35 years ago and I wouldn't have made so many mistakes along the way.

 

[OldShooter]

@street, I think that you have a good handle on what you are you doing. I suggest, though that you run your current fund mix through PortfolioVusualizer and compare the results against a low cost total US market fund. That will make it clear what you're paying in fees and any fund underperformance . You can then decide whether the good service you're getting is worth the cost. I'm not prejudging here, simply suggesting that you take a disciplined look.

 

[street]

@street, I think that you have a good handle on what you are you doing. I suggest, though that you run your current fund mix through PortfolioVusualizer and compare the results against a low cost total US market fund. That will make it clear what you're paying in fees and any fund underperformance . You can then decide whether the good service you're getting is worth the cost. I'm not prejudging here, simply suggesting that you take a disciplined look.

Thanks for making me aware of that and I will look into it. I guess there really is places to do business for free. I didn't think there was a free thing left in this world besides walking. Lol

Thanks I will do some looking.

 

[CRLLS]

My Fidelity rep at one point asked me about rebalancing. I don't do it. He was for it as are most people as a rule. I was "show me the benefit". He ran some numbers on his computer using a hypothetical account, perhaps a 60/40. I honestly do not remember the details. He looked at rebalancing and letting things ride. To his surprise, not rebalancing outperformed very slightly with the detriment of higher volitivity. If not needing the money and having to pay trading fees to rebalance were the primary considerations, I would propose that not rebalancing would be the approach to take.

It only made sense to me. Why would you take money gained from equities out of that bucket only to put it into a lower earning bucket? Needing to make periodical withdrawals may make it a bit more difficult to deal with emotionally.

Of course, not everybody is comfortable with seeing that higher volitivity.

 

[street]

My Fidelity rep at one point asked me about rebalancing. I don't do it. He was for it as are most people as a rule. I was "show me the benefit". He ran some numbers on his computer using a hypothetical account, perhaps a 60/40. I honestly do not remember the details. He looked at rebalancing and letting things ride. To his surprise, not rebalancing outperformed very slightly with the detriment of higher volitivity. If not needing the money and having to pay trading fees to rebalance were the primary considerations, I would propose that not rebalancing would be the approach to take.

It only made sense to me. Why would you take money gained from equities out of that bucket only to put it into a lower earning bucket? Needing to make periodical withdrawals may make it a bit more difficult to deal with emotionally.

Of course, not everybody is comfortable with seeing that higher volitivity.

That is the kicker for me in not to rebalance. I never have through out the 40 years I been engaged in the stock. Very good point!

 

[pb4uski]

Yup. Per Portfolio Visualizer. Jan 1987 to April 2018. 70 US Stock Market/30 Total US Bond Market.

With annual rebalancing:

Portfolio	Initial Balance	Final Balance	CAGR	Stdev	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
Portfolio 1	$10,000	$173,464	9.23%	10.62%	30.50%	-24.41%	-36.08%	0.60	0.86	0.99

No rebalancing:

Portfolio	Initial Balance	Final Balance	CAGR	Stdev	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio	Sortino Ratio	US Mkt Correlation
Portfolio 1	$10,000	$182,062	9.39%	12.06%	31.43%	-30.17%	-42.15%	0.55	0.79	1.00

As of April 2019, AA is 88/12.

 

[street]

pb4uski >> that is an excellent illustration and thanks again for all the sharing and facts you bring to the table.

It has always seemed if you sell and buy in rebalancing there would be some lose in bottom line. Again I would not have had any evidence to back that up but just thinking about it made me not rebalance through the years. I have done so much wrong and unorthodox ways I'm surprised at times I'm where I'm at financially.

Thanks

 

[Sunset]

It's not the rebalancing that is the problem , it is that rebalancing keeps a level bond percentage.

So the portfolio with a higher stock percentage, wins in terms of total return.

This is because 100% stocks outperform all other allocations over a long period of time. (please prove me wrong as I'm 90% stocks).