The academics, including Merriman, will tell you differntly. Either way not a big deal.
Retirement Targets
- Thread starter yowza
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Peter Lynch refers to this as “cutting the flowers, as watering the weeds.”
Not sure who Merriman is but if it’s an investment group, of course they will say that. Otherwise their dogs would shrink quite a bit and they may not be able to employ all that they do.
I must point out that Lynch was referring to individual issues when he coined this phrase, not the strategy of re-balancing your allocations. For example, he thought it was dumb to sell a stock that had doubled in value to “take a profit” as place the proceeds in a stock that had fallen 50 percent simply because of their price movements. Based on personal experience, I have to agree.
Merriman is the guy the wrote to book reference earlier. He is an acedemic. Uses index funds with multiple asset classes: Large Cap, Small Cap, Growth, Value, REITs, International, Bond Funds etc. Basically trying to create the most efficient portfolio while minimizing risk.
Here are his Vanguard recommentations to give you an idea. Too much international for me though. His website is worth a look if you are an investment geek.
Vanguard Mutual Fund Recommendations | Merriman Financial Education Foundation
Get updated Vanguard mutual fund recommendations for various strategies. Optimize your investments today!
paulmerriman.com
I look at it this way with mutual funds. They carry several stocks, many will turn a high percentage each year. At this level you are more dealing with who the good mutual fund managers are compared to the portfolio they have currently. Now if you change because you think domestic will out preform international, that a sector belief change, not just randomly have percentages and trying to hold them.
Weak analogy. Your best workers now will always be your best workers.
Aggressive growth got hammered in 2022, with most funds down 20-35%. Following your approach would steer a person away from growth and tech, which are two of the top performing sectors to this point in 2023.
Likewise, my rebalancing algorithm had me shifting a little money out of tech and growth when it was at its peak in Dec 2021. The money I shifted went to funds that either broke even in 2022, or fell a hell of a lot less than tech and growth.
What beats my algorithm is one sector that stays the top performer every year in perpetuity. That hasn't been a historical reality. On top of that, emotion is the #1 killer of gains. My approach simply doesn't let me make emotional decisions.
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Read both of them and they are good too, but much more in-depth. "We're Talking Millions" is a more simplistic, basic overview book to get youngsters thinking along the correct lines.
You don’t understand what I posted. You make it sound like I adjust these annually. I don’t. I have batch of aggressive growth funds that I have determined have solid managers in them and they consistently do a good job. I don’t rebalance. International funds still have loads of domestic companies in them and vice versa with the global economy. I take a 5 year approach because one year is not long enough. 3 isn’t either in my mind. The people managing the funds can make a lot of difference.
Good discussion on whether to rebalance your mutual fund percentages or not. Here are some thoughts based on my 35 years of investing experience.
Rebalancing is not guaranteed to produce better gains, but it does generally reduce your portfolio volatility, making for a smoother ride. Consequently, I generally recommend rebalancing at least every two or three years. If you want to do this annually, that is fine as well. Below is a true story that illustrates this point.
A former co-worker of mine never re-balanced his 401K portfolio. After 30 years of investing, one of his funds (T-Rowe Price New Horizons) went from being 25 percent of his portfolio to approximately 50 percent. When he gleefully informed me in 2020 how well his New Horizon fund had done, I said that was awesome, but suggested that he rebalance his portfolio, bringing his New Horizon allocation closer to his original percentage. He disagreed, saying that his approach has been working great.
In 2022, New Horizons dropped 37 percent and his fund balance fell by approximately $500,000. Now, his asset allocations are more aligned with his original percentages. At the end of the day, he still probably made more money by letting his New Horizon balance ”ride” and not rebalancing. This is because New Horizons has had a tremendous run over the past 30 years.
Moral of the story: If you do not rebalance, the market will eventually do it for you.
Rebalancing is not guaranteed to produce better gains, but it does generally reduce your portfolio volatility, making for a smoother ride. Consequently, I generally recommend rebalancing at least every two or three years. If you want to do this annually, that is fine as well. Below is a true story that illustrates this point.
A former co-worker of mine never re-balanced his 401K portfolio. After 30 years of investing, one of his funds (T-Rowe Price New Horizons) went from being 25 percent of his portfolio to approximately 50 percent. When he gleefully informed me in 2020 how well his New Horizon fund had done, I said that was awesome, but suggested that he rebalance his portfolio, bringing his New Horizon allocation closer to his original percentage. He disagreed, saying that his approach has been working great.
In 2022, New Horizons dropped 37 percent and his fund balance fell by approximately $500,000. Now, his asset allocations are more aligned with his original percentages. At the end of the day, he still probably made more money by letting his New Horizon balance ”ride” and not rebalancing. This is because New Horizons has had a tremendous run over the past 30 years.
Moral of the story: If you do not rebalance, the market will eventually do it for you.
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Ah, but that's the whole point of rebalancing! Since things are cyclical, what did well/poorly this year is likely to revert. Plus, you are moving money from things that are UP to things that are DOWN - ie a little bit of sell high and buy low.
I rebalance annually, and its usually just a few % of the overall portfolio, but it IS a good thing to do.
Caveat- I am talking indexes and asset classes, not individual stocks. Apple vs GE is probably a different analysis.
Yes, I agree with this. If you’re not going to rebalance, you may be better off being 100% in a total market index fund…which many consider to be a completely acceptable strategy by the way. Or if you believe in bonds, perhaps consider a two fund strategy like VTI and BND.
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Have not made that decision as of yet, we still have a couple of months to work, and if we would it will be 2024 at the earliest.
When your wife gets her next statement, it will show the total amount that she will get as a lump sum. How much she gets per month would be determined by her highest 5-year average, have at least 30 years in and the plan she decides to take. There are 7 plans to choose from, plan 1 gets the highest amount per month, but you leave nothing to your spouse, we chose plan 6. By choosing that plan, we will receive less per month than plan one, but our amount is locked in for the two of us. If either one of us passes, the other spouse will continue to receive the same amount until they also pass away. For us, I was more worried about leaving my wife with less income if I should die, then the extra $500 a month I would be getting if I had taken plan 1. Under plan 6 if either passes the remaining spouse will continue to receive what we will get starting in June of this year.
Yeah, I’ve seen the amounts, done the math (broke the years out) and the numbers they show as a payout is what she has paid in. Just her portion, not even the school’s. My wife talked to the IPERS people at the state fair and when we asked about a lump sum, the guy came kinda unglued. Yelled some and said you don’t want to do that and wouldnt even discuss the option.
You take a low number of 50k/year as a safe average over the 28 years she has taught. Take 15% of that and you have 7500/annually paid in. That equates to 210k total with no interest. Her lump sum payout shows 80some thousand. Teachers pay in 40% of the total. Take 210*0.4 and you get 84k. They wouldn’t even give you a 1% return or anything the school pays in after 28 years. In a conservative fund making 8%, they should have 715k sitting there attached to her. If they just returned her paid in portion. That’s almost 290k.
So serious question……
Is IPERS the only savings vehicle the state offers?
Been private sector my entire career and the “rumor” was that state benefits were superior to the private sector (IPERS, retire early w/ full benefits, very reasonable premiums, etc.). Is that not still the case?
Set up a time this summer to have your wife go down to Des Moines and talk to them personally, that is what we did, and they can project out each of the 7 options.
You really seem caught up on rate of return, which I understand is important, but getting a fixed amount each month for the rest of your life can also be very beneficial. If you want then chose one of your children as the beneficiary, and they would also receive that amount the rest of their life. How much that would be determined by the plan that you chose, but it's a great way to extend the life of the benefits.
Using your numbers of 210K paid in, if she was receiving 4k per month in retirement, after a little short of 34 months she would have received everything, she has paid into the system in principle. At 3K a month it would take her less than 60 months.
IPERS is the best financed system the state uses and would include all public-school employees, police, both local and state, many local hospitals and city and state workers. Last time I looked the program was ranked in the top five of all state's retirement programs, in terms of amounts covered for retirement.
IPERS is a guaranteed benefits program, every employee pays in 6% of their salary and the employer pays in 8% of their salary. You can collect 60% of your highest 5 year salary average at age 55 with 30 years of service, for law enforcement the numbers drop to 25 years and age of 50. You can add up to 5% more to your total by working additional years, but to 35, after that, the percent does not change.
The new thing people are now doing is retiring, drawing from IPERS, then setting out 4 months and then going back to work. You can make up to 75K a year and still draw your retirement until you are penalized. We have had a couple of teachers double dipping the past few years. I work with one now that is 70, he is currently getting his pay, IPERS and SS.
Many people want this guaranteed annuity. The IPERS kick is that the employer pays in 1.5x what you pay in. So you have 15% (actually a little over) going in. Take that 50k average salary. If my wife was to get a 4% match (common from my days of non self employed) and put her 6% in that’s 10%. Over 32 years to her minimum retirement it would be 672k. Say her top 5 years average 67k, to get a 60% of her salary she would need 6% to never touch the principle. If you work any time over that IPERS bumps the percentage 1% each year. The individual account bumps 8%. So any time over age 55-56 and it really gets worse.
It’s forced savings where many don’t. You can opt out of IPERS before you ever start but you lose the employer part. A lot of people are awful with money management and they want someone to baby them and that is what IPERS does. (But with a huge personal cost). You also get to retire at 55-56 whereas most can’t until 59.
What irritates me is that they take the funds, pay you an average payment of interest and keep the principle upon your death. I’m not a fan of annuities and IPERS is an annuity.
