Restructuring and Rebalancing My Portfolio
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:
Simple
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.