NEW YORK, Jan 23 (Reuters) - Rebalancing investment accounts isn't exactly at the top of most people's to-do lists, which is why several new online services offer to do it for you.
One of them is Rebalance IRA (), launched in January 2013 as an outgrowth of the portfolio advice service MarketRiders.com. The site has $180 million in assets under management and charges a fee of 0.5 percent to suggest a diversified mix of very low-cost index funds, and then adjusts the selections as needed.
In order to set the philosophy that guides those investment decisions, Rebalance IRA relies on an investment advisory board which includes retired Princeton economics guru Burton Malkiel as well as Charles Ellis, founder and former managing partner of Greenwich Associates, and Jay Vivian, the former managing director of IBM's Retirement Funds.
The trio meets periodically to strategize, and invited Reuters to their January investment council to discuss their secrets to investing success.
Q: How do you decide what is best for people you have never met?
Malkiel: Rather than thinking that one active manager is better than another active manager, we're putting together diversified portfolios that have different risk levels and are suitable for the people we are trying to serve. We're making sure that we are doing it in the most cost-effective manner possible. That's a difference between what we do and what most financial advisers do.
For instance, we were just having a discussion about possibly replacing one bond exchange-traded fund that we use with another, because it has just become available at a considerably lower expense ratio.
Q: That seems a very detailed decision, and not a macroeconomic discussion. Is that how deeply you focus?
Ellis: It goes to the big picture. You have to do what you can control, and that is to keep costs way down. I like to emphasize that by looking at fees not as a percentage of the assets you've already got, but as a percentage of the return. Then, all of a sudden, fees turn out to be huge.
Malkiel: And then they compound over time. The fact is, looking at what you've got left after 30 years, the difference between making 7 percent or making 5 percent after fees is that you've lost 50 percent of your growth to fees. This is not a little deal - this is a big deal.
Q: How much decision-making should people take on themselves?
Ellis: The right answer to most questions is - Nah, I'm not going to do anything today. Almost every time you think you're going to do something, you'll do better to do nothing.
Q: Does that make a case for actively-managed funds being worth the fees?
Malkiel: On the contrary, that makes the case for index funds, and these are the instruments that we use. It's not that markets are so efficient that they are always right. They are always wrong, but nobody knows for sure whether the prices are too high or too low.
Q: What about target-date funds, which align to a retirement date and then fund managers adjust the equity and bond balance over time?
Ellis: It's a sensible, generic answer for people who accept the proposition that markets are pretty effective at getting the right price and don't want to be bothered to make a lot of decisions.
The secret to success in the investment world is more about not getting yourself in trouble than it is about being really smart and clever and coming out with a brilliant move.
Q: What's the most important thing people can do right now to set their portfolios right?
Vivian: The single biggest thing is to increase your savings rate because most people aren't saving enough yet. That's the easy answer for one thing to do right now.
Ellis: Think very, very long term and index, index, index.
Malkiel: People should control the things that can be controlled. You can't control the market, but you can control the costs. Rebalancing can add to your long run return. And finally, save, save, save.
If we've got a problem in this country it's because people are not saving enough. It doesn't matter if you make 2 percent or 20 percent, if you don't have the money saved, it's not going to do you any good no matter how you invest it.