At the end of May, I did my first rebalancing exercise. This required a fair amount of preparation:
- Setting up an individual 401K under my consulting company
- Checking my family cash flow for the next 90 days and making sure I had 120 days worth of reserves
- Getting a home equity line of credit to cover financial emergencies
- Moving legacy retirement funds to the appropriate (pre- or post-tax) IRA account
- Shifting my current IRA assets to Vanguard
- Making a table that showed where everything ended up, and what it held
- Deciding on my desired portfolio mix
- Considering tax implications of the restructuring that was implied by my mix
- Executing the strategy
The exercise above required wading through admin, building spreadsheets and carefully mapping things out. It’s worth getting specialist advice from a CPA because if you screw up then you can get hit with penalties and/or trigger capital gains taxes.
It’s a pain, and finance companies do not make it easy to move your business away.
Considering fees saved, I earned $1,000 for each hour of my time. I’ve seen cases where families could save up to $10,000 per hour.
Financial inertia can be extremely costly!
My decisions were the result of this year’s reading. I started with the short, free eBook, If You Can, and worked through the author’s recommended reading.
I used Vanguard funds and the expense ratio for my portfolio is less than 0.1% per annum.
Have you asked your adviser to explain your total cost of ownership? Following my blog on expenses, a friend called his adviser, asked the question and was transferred to a call center! He’s still waiting for an answer, they said it would “take a while to pull things together.”
For what it’s worth, my portfolio criteria are:
- Low cost to hold
- Focused on long term capital gain
- Liquid in event of capital being required
- Tax effective
- If it won’t make a difference to my overall situation then wait
Like the behavioral finance books say, it was hard to sell the equity funds with the markets at all-time highs.
Now the tough part, resist tinkering and tracking.