DR 078: Are Low Cost Investment Advisors a Myth? [Interview with Mitch Tuchman of Rebalance IRA]

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Optimized-Untitled design (1)As regular readers know, I’m a big believer in DIY investing. One of my goals for this site, my free weekly newsletter, and the podcast, is to arm investors with the information they need to invest on their own.

Some folks, however, will still want some help. For these folks, my goal is to promote low cost advisors. While the industry standard may be 1% of assets, there are plenty of advisors and tools that charge a lot less. And that brings me to today’s guest, Mitch Tuchman.

Mitch is the founder of Rebalance IRA. His service tailors an investment plan for individuals and manages their investments for an advisory fee of 0.50%. And that’s why I asked Mitch to be a guest on the show, and it was a lot of fun talking with him about investing and retirement.

Topics Covered in the Interview

  • How software guru Mitch Tuchman got into the business of finance
  • What Mitch discovered about investing from pension fund managers
  • How Mitch started his first investing company, Market Rider
  • How Rebalance IRA was born
  • The investing theory behind Rebalance IRA
  • How Rebalance IRA works through Schwab and Fidelity
  • What investing with Rebalance IRA looks like for individuals
  • Mitch’s advice on the stocks vs. bonds question

Resources Covered in the Interview

Rob: Mitch, welcome to the show.
Mitch Tuchman: Thanks Rob. Thanks for having me.

Mitch’s Background

Rob: I appreciate your time today, and let’s just dive right into it. Folks already know that you are with Rebalance IRA. We’re going to obviously talk a lot about that company what you all offer, but let’s kind of go back to the beginning and just give everyone a little bit background on you and how you go into this business.

Mitch Tuchman: It all goes back to probably the late 90′s. I was a Silicon Valley software entrepreneur for many years. Sold the company to a company called Intimate, and for the first time I had achieved my own financial freedom. I was financially independent.

The other part of that was my wife and I just had a baby a year earlier and he was—it turned out he was disabled. We were dealt that card and didn’t really know how to handle it, but knew it would be a huge financial burden for us as well, even 50 years after we had passed away. How do we take care of this child well after we’re gone? And so, on one hand—financial independence—on the other hand, financial burden way after my retirement and death.

I faced a situation: What’s the best thing to do? How do I invest? How do I handle this? How do I invest my money? What’s the proper way to that? Who does this the best, and who does this the way it should be done? And in my journey in seeking and questioning, I ran across a lot of answers I didn’t find satisfying like Goldman Sachs, Smith Barney, and Morgan Stanley, and all the usual ones.

A friend of mine who ran a hedge fund said to me, “You can find the answer by talking to my limiteds, who really understand this. But why don’t you come work for me. I need a guy who knows technology. You can have access to them, and I can definitely use some help with what you know in terms of helping me in all this technology stuff.” A one-day consulting gig turned into a seven-year career in the hedge fund industry.

I was able to have access to the best and brightest people who manage money for institutions that are required to do things like pay retirees money every month or cover the operating expenses of an institution. So, in talking to these people and learning their methods, I learned that the way they think about money management and the way they think about handling large amounts of money was 180 degrees different than the conversations that I was hearing on CNBC or from all the financial service institutions that wanted to take care of my money. It is literally diametrically opposed.

They didn’t speak about which stocks they were picking, and they didn’t give their view on which way the markets were going. They spoke about asset allocation and how their needs would be best met by putting money into different buckets. The distinction was so stark that I began to learn more and more, and I began to take their methods and apply it to my own money management.

As I got more and more into that I realized this is something everybody should be doing and could be doing because two things had happened in the world— One was online brokerages were bringing their fees down below $10 to trade. And second, these new funds called ETFs were becoming available, which offer a variety of flavors of investing that would allow you to put together the right mix of investments to have what’s truly a diversified portfolio.

The first thing I did was,  I started a software service, which is still alive and well and growing today. But it’s for do-it-yourselfers. It’s like Turbo Tax, but for investing and it’s called Market Riders. Markets Riders does not do the investing for you. It tells you exactly what to do to use this methodology. Then, over time many people wanted us to take over their accounts and manage it using the same process, so we began Rebalance IRA and launched that.

MarketRiders for DIY Investors

Rob: Okay. Market Riders. That’s at marketriders.com?

Mitch Tuchman: Correct.

Rob: Explain to folks what that does. It’s a tool that helps you figure out what asset allocation is best for you?

Mitch: It’s like a financial advisor online. If you sit down in a fancy office with a well-bred, educated person who is about to siphon off a lot of money from your account, that person’s going to answer you a variety of questions. He’s going to put it into his software, and he’s going to come up with an investments mix for you. Market Riders simply allows you to use that software with a very easy to use interface.

So, you tell the software how old you are or when you may want to retire. There are some questions about how much risk you can handle, how much investment experience you have and what your goals are. It will suggest a mix of investments for you. Then you’ll tell it how much money you have ever invested, and it’ll tell you exactly which trades to make at your own online broker.

Whether you use Share Builders, Schwab, Fidelity, E-trade… No matter where you go, take that recommendation and execute it. Then Market Riders will tell you when you need to make some changes. We call that rebalance. But you do everything. And that’s a $150 a year service. There are many people subscribing to that who enjoy the fact that they have the complete control of their accounts, but they have to do it all themselves.

Rob: Market Riders is for do-it-yourself investors. Does it actually recommend specific investments, specific ETFs or Mutual funds?

Mitch Tuchman: Yes, specific ETFs. A typical Market Riders portfolio will be 12 ETFs and it will say, “Buy 23 shares of BMD. Buy 18 shares of ETI, 7 shares of IJR…” It will give you the exact number of shares for each ETF based on the current prices of those ETFs.

But the most important thing is, it says, “Okay, Rob. You’re a guy. You’re 45-years-old. You have these parameters… You should have 80% of your money in stocks, 20% in bonds. And within stocks you should have US, Foreign and Emerging markets, small cap, real estate…” It literally gives you a great mix and the specific number of shares of each fund to buy.

Rob: Mitch, the best part of that—you had me when you said I was only 45. I really appreciate that.

Mitch Tuchman: I could have made you 35, but I was hoping you wouldn’t be insulted.

Rob: For those listening, Mitch and I are actually on a video call so he can see me and he knows full-well that I don’t look 35.

Mitch Tuchman: We both have glare—

Rob: Yeah, we do.

Rob: Before we get to Rebalance IRA, which I know we’re going to spend most of our time on, for Market Riders—and this may apply for Rebalance IRA as well, why ETFs as opposed to mutual funds?

Mitch Tuchman: Because with Market Riders, there are a few reasons. First of all, we love the ETFs structure from a tax standpoint. Without going into great detail, you can buy whole and rebalance an ETF and for decades accumulate unrealized gains and not be subject to other actions of other fund holders. So with mutual funds people can get caught by getting taxable income because other people in the fund did certain things.

Number two; mutual funds are only available in the places in which they’re distributed. So if I run a mutual fund, I have to make deals with certain brokers so they’ll show you my mutual fund. And that’s where a lot of these back-ended fees come in. It’s where the whole co-distribution model of financial services starts to create a bunch of—just bad business practices.  We love ETFs because you can buy them anywhere.

Think of an ETF— if  you can buy IBM or Google stock or Apple stock you can buy any ETF available at that broker. One of the really important things in managing a portfolio with this methodology is that it is periodically rebalanced or tuned. The simplest way to describe that is that if I have a stock portfolio that’s half stocks and half bonds, over time, if the stock market’s really doing well like it did last year, and the bond market’s doing really poorly, that portfolio could be 55/45. So you want to take 5% off the stocks and add it to bonds.

Those trading costs can add up, particularly with mutual funds. The beauty of ETFs is that the cost of rebalancing, which should be done once or twice a year, is very inexpensive because of the brokers who are now competing and driving those costs down. So for all these reasons, we love ETFs. They’ve really become bastardized. There’s about 1,400 of them now. Frankly, anybody who needs—There’s 10 or  20 that are appropriate and needed. The rest of them are not important or needed in our world.

Launching Rebalance IRA

Rob: You started Market Riders for do-it-yourself investors, and you said some of the folks there said, “Hey, Mitch. We’d really like a little more a help. We’d like someone to help us manage our money,” and that led you to Rebalance IRA?

Mitch Tuchman: Yes. We’re all emotional people, and when we’ve worked hard to put money in an account, we look at that account as the way we’re going to have financial freedom one day. It’s very difficult for people to have a capacity— even if they understand the method of investing that I’m describing, it’s difficult for them to execute that method of investing.

What they really wanted was a trusted third party to execute these method which means when the markets going down, to talk them off the ledge. Basically, to do all the things that we as  human beings are wired to do that are exactly the wrong things to do at the wrong time from an investment standpoint.

And lot of people are busy. They’re lawyers or doctors and they just don’t have the time. They don’t want to be bothered… So the question was, “Would you just execute this strategy for me?” My answer was always, no, because the business I would have to have created would have been too costly and the fee would have been too high where I would not be adding value to my clients. I’d be taking value away because these, as you know from your whole mandate on your site, are the enemy of everything we are trying to do.

It was only until we were able to figure out a very interesting model for delivering this low-cost advice to the people who needed it the most. People who have, in our target market, $100,000 or maybe up to a million. How do we solve for having a relationship, bringing advice to clients like this, that are in that world and that area for something like a half of percent? Not one and a half percent. Once we figured that out, we were able to launch Rebalance IRA.

Rob:  How did you figure that out? What had to change or what did you do?

Mitch Tuchman: There were a few key variables to it. One was that we needed an amazing amount of credibility to cut through the noise, so when we launched this service people would pay attention and say, “Wow, this is serious. This is not just some other service.”

Number one, we were able to recruit the most important luminaries in the investment business from our standpoint. Charlie Ellis who is at Yale… Charlie oversaw the Yale endowment on their investing committee. David Swenson, who is the Warren Buffet of the world of endowment and pension investing reported to Charlie. Charlie saw us as a vehicle to bring all of these methodologies to everyday investors, and he signed on as the first member of our investment committee. With Charlie, we were able to recruit Burt Malkiel, who’s one of the founding board members of Vanguard.

Burt wrote the seminal work that was expressed in a book called, A Random Walk Down Wall Street, which is now, I think, in its eleventh edition. Anyone who took a finance course in the 70’s until today still reads that book. It’s a great book. Burt joined our investment committee, and then Jay Vivian, who took all of the work of Burt and Bogel and all of the index investing luminaries to heart while he was running the largest pension in America – IBM. Jay took a hundred plus billion dollar pension IBM and converted it to this method of investing.

So those three guys sitting on our investing committee have created and actively reviewed and modified our model portfolios. We figure with that kind of credibility, our marketing costs will go way down.

Second, we were able to use a lot what the media now calls cloud-based technologies to run our office in a super efficient way. We look at 100 little decisions on running our business and have used technology which I won’t go into. We run a super efficient operation, so we can pass all that on to our clients.

Third, we found a phenomenal group of people that we’ve been able to access who are well trained— generally MBA’s with financial backgrounds who want more of a flexible work style, and we have a way of working with these sets of advisors who can bring true expertise to individuals with those things. And in addition, when you manage money the way we do it, your operational costs are way lower because we’re not actively trading, we’re not forecasting the future… hundreds of things.

We work with Schwab and Fidelity. There are a lot of tools and technology we are able to leverage from those firms. We can have a profitable business managing a person’s $100,000 for half of a percent, $500 fee, and the typical wealth manager today needs ten times that amount. If you look at the wealth management industry, to provide this kind of expertise and service and advice that’s personalized to a person, the model today with offices highly priced full-time people, trading operations, et cetera, requires one percent in a minimum of a half million but generally up to a million dollars, so that relationship requires a $10,000 a year client, and we can do this with a $500 a year client.

We do go very deep though. We don’t do a lot of things that wealth managers do. We focus on retirement and financial independence. Our clients are people who are working hard, and what we want for them is to have financial freedom. Either they’re on the path to financial freedom or they’ve attained it and want to maintain that. And our view is, if we can help people get there or stay there, those people have less in their lives; they’re more able to focus on the things that are important to them instead of the stress and struggle when you are in a survival mode in your life. They all make their worlds a better place, and we enjoy helping them do that. That’s why we do what we do.

The Basics of Rebalance IRA

Rob: How does Rebalance IRA work? For someone that’s looking for an advisor and considering Rebalance IRA, how do they get started and what exactly is it that you all do for folks?

Mitch Tuchman: It’s a very simple process. You go on our site rebalance-ira.com, and you click on a very easy-to-find button to schedule a consultation with an advisor. You enter your information, and you instantly receive an email where you can click a couple of buttons and schedule yourself with a highly-trained advisor. You’ll have a one-hour or so conversation with this individual— that’s highly trained.

We do it very much like a doctor would do it. It’s kind of like a financial work up. We take down a lot of information about you, and we learn a lot about you. Then we set up a follow-up call. And for that call we present a plan. This is all at no charge. We talk to you about how we think you should reconfigure, reevaluate, change, makes some things so that you can achieve financial independence. Or, if you’re already there, make sure you stay there.

If you like what we have to say, we do business. If you don’t, we don’t do business. We created some value for you, and that’s how we do us our process. If you say you want to do business we then either— If your account’s at Schwab or Fidelity we put ourselves on those accounts and we’re able to manage them at Schwab or Fidelity. If they’re not, we move them either to Schwab or Fidelity.

Then we have a lot of periodic check-in calls of first year and a yearly call. And, our clients are free to call anytime they want. They have a team. They have an advisor and a service— a  support person on their team. We hear from our clients sometimes once a year when we do a yearly review where we look all the assumptions we made going into our advice. We want to make sure the advice is still relevant and current. And our clients will call us if things change. Maybe they’re changing jobs or they are… Any kind of different circumstance, we’re there to advocate and be their advisor on staff.

Rob:  Does Rebalance IRA also manage taxable accounts?

Mitch Tuchman: We do, but with a big caveat— Again,  our model is not to deal with accounts that have lots of activity because that’s expensive, and we can’t do that on half of a percent. As long as the client has a taxable account that is a retirement account, deemed for retirement, we manage that like we do their IRA.

Rob: When you manage a client like that, do you take into account asset location in terms of what types of assets to hold in a taxable account versus a tax deferred or Roth account?

Mitch Tuchman: Sometimes we do. But we don’t do it in a way you might be suggesting where we might put all the bonds in one account and all the stocks in another. Generally, we find that it’s not necessary, but we may do different allocations in various accounts depending upon the purpose. But it’s all very individualized.

We have clients in their 80’s with Roth IRAs that we’ve heavily invested in stocks because they’re planning to give it away to grandchildren.  Everybody’s different. There are a lot of nuances, and that’s why a lot of our clients tend to be baby-boomer, because when you are 45 to 65, life gets pretty complicated.

When you’re younger, maybe you’re paying off college loans, buying your first home, getting a family going…  As you get older, maybe you’re married, your wife or husband has a couple of accounts here and there, and things start to look like a yard sale of a 401(k) employer, and that’s where we come in. When it starts getting a little complicated or when the light bulb goes off you say, “Man! I just look back 20 years and I was getting out of college. Now we look forward 20 years and I’m in my 60’s!” A light bulb goes off, “This has become much more important and much more complicated. I need some help.”

Using Rebalance IRA

Rob: Okay. For online access to the accounts, do your clients simply just log into Fidelity or Schwab?

Mitch Tuchman: Yes.

Rob: Okay. I’m curious, why Fidelity or Schwab, as opposed to other options?

Mitch Tuchman: First of all, they have enormous credibility with general clients. We’re all worried about Madoff and things like that happening to us, and so we wanted to partner with firms we could say to a client, “Look, we’re going to open up your account with your name on it at a financial institution that’s rock-solid: Schwab or Fidelity.” We’ll add ourselves to that account with very limited authority to manage your money.

We wanted to take whole concern off the table with no-name firm, and it turns out many, many, many people have accounts with Fidelity. Fidelity actually has, I think, about 25% of all the 401k accounts in America on their platform, and we’re focused heavily on this part of the investment industry. So they were great partners, and we now manage a lot of money on both.

Rob: You can manage someone’s 401k at Fidelity or Schwab as well?

Mitch Tuchman: Certain companies, yes.

Rob: Why is that? Why only certain companies?

Mitch Tuchman: There’s a very interesting thing that people don’t know much about, but is a feature on many 401k plans. For example, if you work at AT&T or you work at Kaiser Permanente… Many of the tech companies that have a Fidelity 401k called Net Benefits, there’s something that everyone should look at called brokerage link. Brokerage link is kind of way where you can avoid all of the, perhaps, bad options that your company has provided for you on your 401k.

A brokerage link account at Fidelity (and it’s called something else at Schwab) allows you to get all your money into this self-directed account. And in that self-directed account you can do whatever you want. We can manage those self-directed accounts at Schwab or Fidelity.

Rob: If you have a 401k, and you have this self-directed option of brokerage link at Fidelity, which I think I have, you would be able to manage that individual’s 401k?

Mitch Tuchman: We do, yes. By the way, we called our company Rebalance IRA. We believe in balance. We think a lot of this relates to the holistic approach. So many of clients, we look at their 401k options whether we can manage it or not, we give them very specific advice on which funds to choose so that everything they’re doing in their 401k plan is holistically tuned to what we’ll be doing in their IRA’s.

Rob: Pardon me. I’ve been fighting a cold so I keep trying to avoid this coughing. So you could help folks with their 401k even if they don’t have the brokerage link option. It’s just that they would have to go in and make the changes themselves for that type of account?

Mitch Tuchman: We don’t insist on it, but we’d prefer to that. Again, we want people to become financially independent, to have that freedom, and if they’re doing something really dumb on their 401k side and we’re doing something really smart from the IRA side, that’s not going to work well. We play like that the whole picture.

Rob: Okay. In terms of the advisors that get assigned to new clients, are these registered investment advisors? What are the qualifications of the individuals that folks would be talking to if they scheduled a consultation with Rebalance IRA?

Mitch Tuchman: The people that are advising clients… We have people who are very skilled at doing the intake diagnostic. But the most important role comes after that where that information is translated into a plan of action. Those advisors all have a Series 65, so they have certification. That’s a legal requirement by the SEC. But more importantly, they’re all MBA’s. They all have financial backgrounds and they’ve all been trained by our company with our methodologies to give the advice that, holistically, would be the way to get people on the path our mission is to get them on.

Formulating Your Score

Rob: Okay. I’ve read on your website, you mention on the website that you use advanced software developed in-house? And I guess, through this consultation process you develop a specific score. What can you tell us about that score and how that works?

Mitch Tuchman: There are a couple of things that are really important and a couple of things that are kind of important. One is, how old are you and when are you going to need this money? If you have a 5 or 10 year time horizon, that’s one very important part of scoring because it means we want to try to get you into more of an equity type portfolio. So it’s time horizon and when you’re going to need the money and how much of the money you’re going to need. If you’re going to retire in 3 years, but you’re only going to need one, two or three percent of the money, that’s important. Then you have to balance that by a bunch of questions we ask related to what we in the business call risk tolerance.

But it’s really, really hard to get at that. How strong is your stomach when you’re looking at your account and the market is  down 20 percent. So we try to get at that by knowing what kind of experience you have as an investor. People who’ve  tend to do a lot of investing, tend to have lots of experience watching their account and dealing with the ups and downs. And we try to get our hands around, “Have you had a lot of experience? What have you done in ’08, for example? What is your risk tolerance? We ask a bunch of questions, and we get a score for the client. That’s one of the quantitative parts of our diagnostics.

Then there’s the subjective part, “Tell  us about what you’re doing; your job, your family, spouse, kids? Do you have parents to support? Do you have kids going through college?” We try to understand the holistic picture. And when we combine that whole picture together, we try to figure out how that person can get to a point where one day they can basically sit on their couch all day, if they want, knowing that what’s coming in is at least a little bit more than what’s going out. And that’s going to stay that way until they’re six-feet under. If can we figure that plan out, then we can help that person and get them where they want to go.

Bonds vs. Stocks in Your Portfolio

Rob: You mentioned that time horizon is obviously very important. One question I get a lot is folks that are retiring now or soon, want to know how much should go to equities and how much should got to bonds at that stage in life? I know there’s not one answer to that question. As you’ve mentioned, different folks have different risks tolerances.

Some folks may want to  keep a lot of their money and hope to one day pass it on to their children or grandchildren.  There are a lot of different variables. But can you kindly give us, in broad strokes, your view on equity versus income or bond allocation during retirement. I know I didn’t prepare you for this question so this is like a pop quiz.

Mitch Tuchman: No, this is a great question and the reason it’s a great question is because the conventional wisdom of the way that would normally be answered is not relevant right now because we are in a tough spot  in our economic history as we all know, where our government is artificially manipulating interest rates, because the government has deficits that will only get larger if interest rates were at were at a quote “market rate.”

Bonds which traditionally— You open up any finance book written probably up to two years ago, and bonds are the safe place to put money. The traditional trade off is, we have two choices. We can put you in all bonds on one extreme which will give you a 5% return. Or we can put you in all stocks which will give you a 9% or 10% return on historic averages.

The good news is, if you have enough money and five is okay, you’ll sleep at night. You won’t see much volatility in your portfolio. It’ll stay the same number, and you’ll check your coupons and the five percent will cover you for inflation over your lifetime. You’re good to go. Let’s do that.

If you take the stock route with your 10%, your money could double every 7 years. With the bond route your money is going to double every 12 or 15 years. Pick your poison or somewhere in the middle, and let’s do that.

You can’t do that though today, because bonds are not yielding 5%. Ten year treasures are yielding 2 ½ to 2.75%. And when interest rates go up, the bond themselves are going to depreciate in value, so you’re going to perhaps lose money owning bonds. In fact, last year was the first year in 15 years that bond holders lost money.

So the answer to that question is, there’s no more rules of thumb that work. We all know you take your age and subtract 100 and that’s that! It doesn’t work! It’s a difficult question.

The way real people answer that, is first of all do you have more than enough to cover your living expenses if you’re get 3 or 4% return on bonds? If so, do you care about volatility? I guess the answer is, it’s more complicated to try and answer it. I’ll give you a couple of sceneries.

One couple we just talked with— she’s 58, he’s 65, and they need $120,000 a year to live on. They have $1,000,000 saved up. They hate volatility. They have no other source of income, and they’re in trouble because even with a million dollars you cannot withdraw $100,000. Even if you would take out his Social Security and eventually hers, that million dollars is not going to last. It has to be more aggressively invested. But they hate volatility.

Rob: That’s between a rock and a hard place, there.

Mitch Tuchman:  Yes, a rock and a hard place. That couple, we have to coach them on getting more aggressive and showing them that a globally diversified portfolio like the types that we construct, have always recovered. So even though you’re going to lose perhaps, in a correction, 20% — or feel like you’ve lost it, if you just stick with it that’s the right way to go. That’s a tough one. That’s were an advisor adds a lot of value.

Another couple I talked to had a couple of million dollars. He had a pension—was a retired cop. Had a lot of money and really no need to handle any volatility. Ironically, that kind of person can be more aggressively invested because they’ve got a pension coming in. We try to show people that pension and Social Security payments, if you equate that to a 3% return can often time’s look like a multi-million dollar bond portfolio, and we try to equate that to a multi-dollar bond portfolio and put the other savings in that perspective with their allocation decisions.

A lot of what we do is educate. It’s really difficult today because we haven’t had a real correction in about 2 ½ years.

Rob: It is difficult and this is just my own view. I don’t for minute—and folks who have listened to this podcast know that I don’t try to predict the market. I was convinced interest rates would have gone back up 4 years ago. That’s how good I am at predicting anything. But they will go up someday.

And as you’ve pointed out, when they do, the value of bonds will go down, and equities will have pressure as interest rates go up as well. It’ll be an interesting time for folks, so I guess we’ll wait and see. But the long and short of it from your perspective for folks and retirement is that there’s just no rules of thumb. It’s a very specific to the individual’s circumstances.

Some Rules of Thumb

Mitch Tuchman: It is. Here are a couple of rules of thumb. If you will have a million dollars to put away in IRA or SEP- IRA or whatever, if you pull 3 or 4% out in a year, and you can invest it in a portfolio that’s 60% to 70% equities, and handle volatility, then the portfolio should be able to allow you to pull your 3 or 4% out a year and protect yourself from inflation. If you need to pull out more, then you better get more aggressive in equities because you can’t pull out with the portfolio earns because you’ll find yourself in 15 or 20 years feeling very, very poor.

You’ll find that $60 steak dinner is— you can’t afford that anymore. 3 or 4% on a pretty aggressive portfolio is a great mix for now. And we like to show investors how to get used to volatility but have a very well-diversified portfolio that will withstand it. Dividends today are paying more than bonds right now.

Rob: I know. That’s been the focus of my own investing. They’ve definitely returned better than the bonds. The good news about it, the rise in interest rates, your current bond portfolio will take a hit, but particularly if you have, say, an intermediate term bond that’s going to buy and sell to reset its duration, that’s going to be investing in higher rate bonds so you’ll eventually do okay. It’ll be just a hit to begin with.

Mitch Tuchman: That’s exactly why, in our income portfolio the bond portions of our portfolios include two things to that point. One is we do use high yield bonds, a high yield bond funds, and that’s because those issuers, while they might be a little more of a credit risk to them, they’re not allowed as a result of that—they’re not given the opportunity to issue long-term bonds. So the duration— maturities are averaging four or five years.

The other fund that we use, which to your point is very helpful, is on high-grade corporates. We uses a five to ten year bond fund because the 10 year bonds in that fund become 9, 7, and 5 year bonds. And as the maturities come in, they appreciate in value given where yield curve is between 5 and 10. Your maturities are about 1.75 to 2.5, so that, as you know, gives you kind of a built-in hedge. Right now, our reaction to this market is that 5 to 10 year BCIT, the Vanguard fund is a really great place to put some money.

Rob: We’ll appreciate that. Anything I’ve not asked you that I should have or anything else you’d like folks to know what about you guys are doing at Rebalance IRA?

Mitch Tuchman: Wow, sorry, I was in react mode to your question here. No, I think that pretty much covers what we do. I think that the main thing we try to talk to clients about is that even if you are the type of person that, in your emotional make up, you really want delegate investing to somebody else to handle this, which is our client Rebalance IRA, we call them ‘delegators’ in the industry. There are a person who is busy. They’re just not interested investing. They might not be even listening to this podcast because they’d rather be listening to a travel podcast— those kind of people…

I guess the best advice is, they need to trust somebody because they want to delegate the management of their money, that they seek to trust a person—and not the person they play golf with because they like them. But, to trust an investment methodology that will help them get there. And you can compare and contrast investment methodologies.

I think the one you advocated on that we do, is if you build a portfolio that’s very low-cost, using low-cost index funds that has diversity. In other words, the portfolio owns through its funds 10,000 stocks and 3, 000 bonds. If you own that kind of portfolio not only are you lowering your costs, but lowering your risk because you’re not making bets. You’re not having someone making bets with your money. The only bet you’re making is that the global capital of the system will not fall apart. If you make that one bet and you keep your costs down and use this process that anyone can read about… Find someone you can trust. Not a person, not even an institution, but a process.

Rob: Good. One last question Mitch before I let you go. If you were going to recommend one book on investing for folks to read, what would your recommendation be?

Mitch Tuchman: Hands down it would be The Elements of Investing, and it’s written by two of the members of our investment committee, Burton Malkiel and Charlie Ellis. It’s a simple book. I think it’s about 100 pages and it’s written for layman. It very succinctly describes our investment process and the one that they’ve been advocating and building upon for decades.

Rob: I actually see it on your site, The Elements of Investing. We’ll all leave a link in the show notes for folks so that they can check that out. Mitch, I really appreciate your time. Thank you so much for being in the show.

Mitch Tuchman: Thank you, Rob. Thanks for having me.

Published or Updated: June 18, 2014
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. James Humphrey says:

    Rob

    Stumbled across your website as I was doing some investment research. I just listened to your pod cast (DR 078) and it was right on point and will be very helpful.

    I’ve also started looking at other information on your web site and want to thank you for the obvious time and effort that you spend making this information and service available.

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