Are you getting the most out of your investments? If you are running your own investment portfolio without any outside help, you might be leaving money on the table. I know I have been guilty of this. Thankfully, there are a host of new investment advisory services out there that can help you maximize your resources so you can meet your financial goals more quickly. For many that means retirement, for others it simply means being able to make life choices that don’t revolve around money. Whatever your financial goals are, there are a few things you can to to help improve your chances of reaching them.
The Biggest Problems Investors Face
As I mentioned in the opening, there is a good chance your investments are suboptimal. There are a few things that work against most investors, namely: poor asset allocation, investments that cost too much, paying too much for investment advice, and not knowing if the investment advice you receive is sound.
To top it off, many people try to time the market or let their emotions get the best of them. More often than not, they end up buying when stocks are overvalued, and selling when they decrease in value. Buying high and selling low is the worst thing you can do. The better option is to let your investments ride, and periodically rebalance your investment portfolio as you go.
Solving these problems is the primary goal of Rebalance IRA, an investment management service designed to solve these problems. The founders, Scott Puritz and Mitch Tuchman, wanted to find a way to cut through the noise and offer investors a managed solution that would offer best in class investment advice, for a fraction of the cost most investment advisors charge.
To solve this problem, they enlisted a world-class investment advisory board (see below), created some business rules, systematized the process, and built a platform that allows them to offer personalized investment advice to customers at half the cost of the industry standard. Let’s take a look at these problems in more detail, and how Rebalance IRA offers to solve them for their customers.
Problem Solved: Poor Asset Allocation
Poor asset allocation is a problem for many investors. In a nutshell, asset allocation is diversifying your investments to include a variety of asset classes. This spreads your risk, and generally improves your returns while minimizing your losses. The problem is that it can be confusing to diversify your investment portfolio when: you have multiple investment accounts in different locations, and you haven’t established rules for how and when you want to rebalance your portfolio.
This is where Rebalance IRA comes into play: they will work with you to establish your financial goals, determine your risk tolerance, and create an investment timeline. From there, they work to build an asset allocation that will meet your investment needs. With this comes periodic portfolio rebalancing to ensure your asset allocation is on track. You also get a quarterly review with your investment advisor to ensure you remain on track.
Problem Solved: Expensive Investments
Many people invest with mutual funds. On paper, this is a great idea. You buy one fund that contains shares of multiple equities, sometimes hundreds or even thousands of partial shares of a stock. This can be a great way to invest in a slice of the stock market, at least when you buy the right mutual funds. But too many mutual funds try to beat the market and the results, in the long run, are rarely successful. Unless you have the track record of Warren Buffet (not many do), then you are better off avoiding actively managed mutual funds and their high management fees, and instead, investing in low-cost index funds that simply match the markets.
This is the investment model Rebalance IRA uses. They invest primarily through low-cost index funds which keeps expenses low, and makes it easier to manage a variety of different investment portfolios. The results, over the long run, are generally better than a portfolio consisting primarily of actively managed mutual funds, especially when taking the mutual fund expense ratio and financial advisory fees into account. The 0.70% in the image above right refers to the all-in cost of Rebalance IRA, including investment advisory fees and the cost of the fund management expenses. This gives you personalized investment advice for less than the cost of many mutual funds.
Problem Solved: Expensive Investment Advice
Certain industries have standard rates. For example, Real Estate Agents almost always charge a 6% commission on a house sale. This is the generally accepted standard. The financial industry has its own “standard” which is usually 1% of assets managed. In most cases, an investment advisor will charge you $1,000 for every $100,000 invested with their firm. There is some wiggle room there, but 1% is a good rule of thumb.
But this isn’t the only expense you might be charged for investment advice. Many investment advisors also receive a commission on the investments they sell you (can you say conflict of interest?). This could be in the form of an up-front fee, a percentage of the purchase price, a fee when you trade, a fee for selling your investments, etc. I learned this the hard way. The first mutual fund I bought had a large up-front load. This cost me a lot of money. It was an expensive lesson, but one that caused me to take a deeper look into investing. I learned a lot. For example, not all investment advisors have a fiduciary duty to their clients (a fiduciary duty simply means they are required to act in your best interests, not in theirs).
Rebalance IRA solves these problems with expensive investment advice. First, their investment advisors are all Registered Investment Advisors, or RIAs. This means they are registered with the Securities Exchange Commission (SEC) or state security agency and they required by law to work in the best interest of the client. Meaning they can’t recommend investments that aren’t right for you. Second, Rebalance IRA doesn’t take a commission on any investments they recommend, thereby, they eliminate the conflict of interest that arise with some other investment managers. Finally, Rebalance IRA charges management fees that are approximately half the industry standard. Here is a sample of investment management fees found throughout the industry:
Investment Management Fees from Large Investment Advisory Firms:
About this chart: The information in this table is publicly available on the investment company websites, with the exception of the Advisor / Training Row. Click on the above chart for a full-size page, along with footnotes and references (pdf).
Problem Solved: Sound Investment Advice
Rebalance IRA built their entire investment philosophy on based on the works and advice of some giants in the investment world. Their Investment Advisory Board includes: Dr. Burt Malkiel, Dr. Charley Ellis, and Jay Vivian. Here is a brief byline for each of them (or you can read the more detailed version on their site):
- Dr. Burt Malkiel: Author of the investment classic, A Random Walk Down Wall Street, which has sold over 1.5 million copies, and 16 other books. Frequent writer for The Financial Times, The New York Times, and The Wall Street Journal, served over 25 years on the Board of Directors of The Vanguard Group.
- Dr. Charley Ellis: Author of Winning the Loser’s Game, which has sold over 500,000 copies. Sat on the Board of Directors of America’s largest fund company, The Vanguard Group, former chairman of the Yale University investment committee. Served on the governing boards of the Harvard and Yale business schools, as well as New York University’s Stern School of Business and Phillips Exeter Academy.
- Jay Vivian: Former Managing Director of IBM’s Retirement Funds, where he oversaw $135 billion in IBM investment funds for more than 400,000 employees worldwide.
Rebalance IRA Investment Methodology: The founders of Rebalance IRA used the teachings of their Investment Advisory Board to create the methodologies they use to create investment portfolios for their clients. The methodology is built on Modern Portfolio Theory, which is an investment methodology that seeks to increase returns while minimizing risk, often by including a diversified investment portfolio, minimizing expenses, and regular rebalancing to ensure the allocation is optimal for each client. They utilize index funds and ETFs to reduce expenses, and aim to match the market, instead of beat the market.
Summary: Rebalance IRA Provides Best in Class Investment Advice with Best in Management Fees
Seeing the numbers in the above chart was eye opening for me. It’s easy to say, “It’s important to minimize investment fees.” It’s another to actually see how much it impacts your bottom line. Perhaps even more eye-opening is the fact that the more expensive investment advisory firms also charge commissions for the funds they sell. That makes you wonder how much of your money you are giving to them and whether or not you can do better elsewhere. Minimizing costs is more than half the battle.
Is Rebalance IRA Right for You?
I’m impressed with what Rebalance IRA has to offer. They feature a solid investment strategy at a very low cost, compared to the competition. If you are a DIY investor, and are disciplined enough to manage your investment costs and regularly rebalance your investment portfolio, then you probably don’t need a company like Rebalance IRA, though you may find it helpful to get an annual review from a fee-only financial planner to help you determine if you are still on the right path.
But if you find yourself among those who don’t have the skills or desire to manage your own investments, then you can sign up for a free consultation with Rebalance IRA. There is no obligation, all you need to do is fill out a quick form, and schedule a review of your investment portfolio. There is a $75,000 minimum to open an account with Rebalance IRA.