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tony

Folks would prefer to be stuck in traffic then do this

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I think for most folks Target Funds are a very smart move. Just choose index funds from a reputable trusted company that offers low fees and a client centered orientation and your work is done. This article explores the fact that most people would rather be stuck in traffic than rebalance. 

 

https://www.fa-mag.com/news/portfolio-rebalancing--clients-would-literally-rather-be-in-traffic-40183.html?print

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Portfolio 1: Fidelity's ultra low cost (even 0% for the stock funds) 3 fund portfolio

Portfolio 2: Target Date Fund costing 0.16%

Over 30 years Portfolio 2 will eat up about 7% of real returns relative to Portfolio 1. So my question is, does rebalancing make up for the extra cost associated with having an all-in-one fund do it for you? If not then MAYBE it is still better to make fixed contributions to a 3 fund portfolio and never rebalance?

I tend to suggest an all-in-one fund for folks who won't rebalance because it'll keep the risk level of their portfolio at an appropriate level for them. However, I've never done the math and so I'm not sure if they're likely to come out the other end with more money.

If somebody is unwilling to rebalance their portfolio then I wonder how important maintaining an appropriate level of risk is. If they can't be bothered to rebalance then presumably they aren't looking at the account regularly and they wouldn't do something even if they did look. So maybe the behavioral risk of selling during a crash isn't that significant?

...it is tough for me to get in the mind of folks who would prefer to sit in traffic than use an equation to make the proper sales/purchases, which takes mere seconds (minutes at worst).

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15 hours ago, EdLaFave said:

.it is tough for me to get in the mind of folks who would prefer to sit in traffic than use an equation to make the proper sales/purchases, which takes mere seconds (minutes at worst).

 
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These are the same folks that will turn over their retirement planning over to an annuity salesperson to do it all for them. Plus Ed, not everyone has the knowledge and expertise on these issues that you have- not even close at your age especially. So directing them to a target fund makes a lot of sense even if its not the perfect scenario. Many folks just don't want to be bothered with this stuff. I cut my own lawn, do my own painting, clean my own gutters etc etc. Some folks pay others to do it all and pay a fortune to do so but there must be a cost /benefit to it for them.  I am like you more so than not  but its important to realize that folks have different values in all areas of their lives-especially money and how they deal with it.

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54 minutes ago, tony said:

its important to realize that folks have different values in all areas of their lives-especially money and how they deal with it.

I completely respect that. I'm just saying that since I struggle to predict this group's behavior (and because I haven't done the math yet), it isn't clear to me if a more expensive auto-balancing fund will turn out better than a cheaper 3 fund portfolio that is never (or very rarely) re-balanced.

My intuition is that a target date is best in this scenario, but I have doubt.

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It's not always that they don't want to be involved with their portfolio, but as it says near the end of the article, it can be emotionally difficult for people to sell over performing assets to buy under performing assets. Listen to Dave Ramsey, he is constantly telling people to look at an S&P past performance chart and pick the fund that beat the index in the past.🙄

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3 hours ago, MNGopher said:

t's not always that they don't want to be involved with their portfolio, but as it says near the end of the article, it can be emotionally difficult for people to sell over performing assets to buy under performing assets.

Good point . Thats exactly right. i felt the same hesitation in the past so that is why I own Vanguard Life Strategy Fund now. The rebalancing is done internally which makes the process painless and eliminates any hesitation.

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My 403b is with Security Benefit DirectInvest.  I use the 3 fund strategy and I do my own rebalancing.  However, they do offer an automatic rebalancing option.  I personally like to control when I rebalance but, would this be an appropriate option for someone who can’t be bothered with rebalancing but still wants to save money on the added expense of a Target/Life Strategy Fund?  Or am I missing something?  Is there a difference when setting up your own auto rebalance?

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11 minutes ago, jebjebitz said:

My 403b is with Security Benefit DirectInvest.  I use the 3 fund strategy and I do my own rebalancing.  However, they do offer an automatic rebalancing option.  I personally like to control when I rebalance but, would this be an appropriate option for someone who can’t be bothered with rebalancing but still wants to save money on the added expense of a Target/Life Strategy Fund?  Or am I missing something?  Is there a difference when setting up your own auto rebalance?

I’d like to read people’s feedback on this. I’m a control freak by nature and so I always ignore this feature at various vendors. If there is positive feedback then I might start giving a different opinion when hands-off people ask what I think. 

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I am not familiar with that option as I don't think I have ever been in a plan that offered it outside of a target or similar fund but I may be wrong .So how does this work ? Do you indicate what allocation you wish and  then do they automatically adjust it quarterly or yearly? Thats pretty much what Vanguard LS Funds does so if its free and you can get the lower fee whats not to like?

I am at the point in my life that I don't sweat the expense ratio too much as by industry standards my fees are very low. I am o.k paying a few extra cents to have Vanguard do it for me in a LS Funds . You guys amaze me how deep you dig for the lowest possible fees in your accounts. Its very astute of you to do so .  Its amazing in that years ago I would get excited about getting my 403b expenses down to 1% and here you guys  are fighting for every last decimal of lower fees.    If more folks were like you, the financial industry would have to totally and completely reinvent themselves or they would not survive. Awesome!!

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15 hours ago, tony said:

So how does this work

I've got the same question. What I can say, is that in Security Benefit's NEA DirectInvest I haven't noticed an auto-rebalance feature, but they definitely have a regular rebalance feature. You just have to tell it what percentage you want each fund to be and it'll take care of the rest. This is convenient for folks who don't want to do any math because all they have to know is their preferred asset allocation.

15 hours ago, tony said:

If more folks were like you, the financial industry would have to totally and completely reinvent themselves or they would not survive.

Given the huge inflows into Vanguard and index funds in general and given the creation of expense free index funds, I think there already are more of "us" 😀

...unfortunately very few teachers have joined "us."

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1 hour ago, EdLaFave said:

I've got the same question. What I can say, is that in Security Benefit's NEA DirectInvest I haven't noticed an auto-rebalance feature, but they definitely have a regular rebalance feature. You just have to tell it what percentage you want each fund to be and it'll take care of the rest. This is convenient for folks who don't want to do any math because all they have to know is their preferred asset allocation.

I looked into this but am still not 100% certain how it works.  I'll describe what it looks like when I rebalance and receive the message to "auto-rebalance" in my DirectInvest account:

  • I choose "Change Investments"
  • From there it asks if I want to use Morningstar recommendations or choose my own investments.  I select "Choose my own investments"
  • Next it asks if I want to "Exchange", "Rebalance" or make changes to "Future Investment Elections".  I select "Rebalancing"
  • I then perform the rebalance by typing in the percentage of allocation for each investment.  At the bottom of this page, before I can continue, it asks: "Would you like these changes to also affect how your future contributions are invested?"  I choose yes.
  • Finally, I'm taken to a page that asks: "Would you like to set up automatic rebalancing for your new portfolio?"  Off to the side on this page there is an Icon that says:  "What is Automatic Future Elections?"  followed by a short description that reads, "Automatic future elections enable you to specify the frequency at which to rebalance your asset allocations" 

It's a little confusing to me because "Automatic Future Elections" sounds a lot like the "Future Investment Elections" option from the earlier menu.  I did not click yes to auto rebalance because I'm reluctant to sign up for something that I might not be able to get out of easily.  

Not sure if this explanation was helpful/necessary but maybe there are members on here that can tell if this is actually an auto rebalance option or something entirely different.

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I love the security benefit direct invest auto rebalance feature.  Thanks to this site and bogleheads I got rid of my hideous variable annuity and decided on the vanguard balanced index fund ( 60-40).  However, that did not have any international holdings so I just created a 60-40 allocation on the direct invest but also included some international in the equity portion.  I set the auto rebalance to yearly and I am not going to look at it for another thirty years.   I think they have options to rebalance quarterly, semi annual or annual.  They do send some snail mail each time the rebalance occurs.  I originally had quarterly but was getting sick of the mail so I changed it to annual since I don't think it makes too much of a difference.

Thanks 403bwise!  

 

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