| NEW YORK
NEW YORK Jan 23 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
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
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
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
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.