Category Archives: Bogleheads

Posts that would relate to or interest those of the Bogleheads community.

Jack Bogle – On Portfolio Rebalancing

Jack Bogle – On Portfolio Rebalancing

There are many discussions about what Jack Bogle says and how to rebalance ones portfolio. For me, the following sets the record straight about stance, attitude and the nuts and bolts of what to do. Jack seems to take a very relaxed view of it, and practices how he describes it as well, which is always important. When I visit forums such as Bogleheads I see a lot of frantic and detailed discussion about how and why and when to rebalance a portfolio extrapolated, supposedly, from what are JB’s “principles”. But, in my opinion, they don’t resemble closely how he describes it below, read for yourself, you can do a web search to find this quote online elsewhere as well:

Hi, Mr. M,

Sorry it’s taken me so long to respond to your thoughtful note.  Busy!

We’ve just done a study for the NYTimes on rebalancing, so the subject is fresh in my mind.  Fact: a 48%S&P 500, 16% small cap, 16% international, and 20% bond index, over the past 20 years, earned a 9.49% annual return without rebalancing and a 9.71% return if rebalanced annually.  That’s worth describing as “noise,” and suggests that formulaic rebalancing with precision is not necessary.

We also did an earlier study of all 25-year periods beginning in 1826 (!), using a 50/50 US stock/bond portfolio, and found that annual rebalancing won in 52% of the 179 periods.  Also, it seems to me, noise.  Interestingly, failing to rebalance never cost more than about 50 basis points, but when that failure added return, the gains were often in the 200-300 basis point range; i.e., doing nothing has lost small but it has won big.  (I’m asking my good right arm, Kevin, to send the detailed data to you.)

My personal conclusion.  Rebalancing is a personal choice, not a choice that statistics can validate.  There’s certainly nothing the matter with doing it (although I don’t do it myself), but also no reason to slavishly worry about small changes in the equity ratio.  Maybe, for example, if your 50% equity position grew to, say, 55% or 60%.

In candor, I should add that I see no circumstance under which rebalancing through an adviser charging 1% could possibly add value.

Use your own judgment, but perhaps these comments will help.


portfolio rebalancing

Social Security Benefits – Know your Stats!

Have you been paying taxes all these years from your work? If so do you know your retirement (social security) benefits? It might be interesting for you to know:
You can create an account here and find out quickly:
And here are your “tips”:

Much has been written in the financial press about the merits of delaying the start of your Social Security benefits. There is much to this, as the difference between commencing your benefits at 62 versus waiting until your full retirement age are significant, as is the difference in waiting until age 70.

Should you delay taking your Social Security benefits? As with most things in the financial planning world the answer is that ‘it depends.’ Here are some factors to consider:
Do You Need the Money Now?

Mathematically waiting until your full retirement age (66 for many of us, 67 if you were born in 1960 or later) to take your Social Security benefits results in a benefit amount that is about 30% higher than if you start taking benefits at age 62. Waiting until age 70 results in a benefit that is about another 32% higher.

This is all well and good, but if you wait to take your benefit will you have enough income from other sources to tide you over from age 62 to age 66?
Are You Still Working?

If you are still working and take Social Security benefits before reaching your full retirement age you could easily exceed the annual earnings limit at which your benefits will be reduced. For 2016, the annual earnings limit is $15,720. If your earnings exceed this limit your benefits will be reduced. The amount will depend upon your age, but the reduction is a steep $1 in benefits for every $2 that your earnings exceed the limit. This may be a good reason to delay taking your benefits until at least your full retirement age. (For more, see: Top 6 Myths About Social Security Benefits.)

The annual earnings limit goes away once you reach your full retirement age, but your benefits may still be subject to taxation. This means that up to 85% of your Social Security benefits could be subject to taxation, so if you are working while collecting benefits and in a high income bracket you may want to delay taking benefits until your earnings are lower or until age 70. (For more, see: Maximizing Your Social Security Benefits.)
Cash Now or a Larger Benefit Later?

There is a significant (and permanent) reduction in your benefit if you commence taking Social Security at age 62. This reduction is reduced roughly proportionately for each year between 62 and your full retirement age. Likewise, waiting until age 70 results in a permanent benefit that is about 32% higher than if you started benefits at your full retirement age. Again, this increase is proportional for every year between full retirement age and age 70.

The retirement planning question is whether the benefit of having the cash flow now outweighs the larger benefit gained by waiting. The answer will depend upon several factors.

– Calculate the break-even point of waiting. There is some point which the cost of waiting to take benefits is offset by the larger permanent benefit. This break-even point is expressed in terms of cumulative benefits. Check out this piece from Schwab for more on break-even points. (For more, see: Delaying Social Security Can Add Up.)

– What is your life expectancy? While this is just an estimate, if longevity doesn’t run in your family – or if you suffer from an illness that might shorten your life – then it might make sense to take your benefits sooner rather than waiting.

– Do you have other retirement resources? If you decide to wait in order to claim a larger benefit in a few years do you have other resources to support yourself in the interim? This might include other retirement accounts such as a 401(k) plan or an IRA. Are you eligible for benefits from a pension plan? Do you have taxable investments or cash that you can tap into?

– How does waiting affect more complex claiming strategies? Far beyond the scope of this piece, there are a number of more complex strategies that can be employed, often by couples, including file and suspend and the use of spousal benefits. Some of these tactics entail least one spouse to waiting to take benefits. Note that the 2015 budget bill has ended – or is about to end – file and suspend, and the ability to file a “restricted application” if you were not already age 62 as of Jan. 1, 2016. To explore these and other strategies contact a financial advisor well-versed in these areas.(For background information, see: Social Security File and Suspend Claiming Strategy Is Ending: Now What? and 4 Unusual Ways to Boost Social Security Benefits.)
The Bottom Line

The decision when to take Social Security benefits is an important one and can be complex. There are a lot of factors to be considered including your other retirement resources, life expectancy and your need for the money. If you’re married, the decision can be even more complex. Take some time and seek help if you need it, as this is one of the most important decisions you will make regarding your retirement. (For more, see: Social Security Changes for 2016 and 5 Social Security Changes to Expect in 2016.)

Read more: Tips on Delaying Social Security Benefits | Investopedia