May 22, 2015

CONSUELO MACK: This week on WEALTHTRACK, putting your retirement portfolio on auto pilot. Financial thought leader Burton Malkiel has joined forces with online investment advisory pioneer Mitch Tuchman to offer retirement portfolios of low cost index funds that automatically rebalance with a human touch. Why they believe the combination will lead to safe retirement landings is next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. One recurring theme on WEALTHTRACK over the years has been how individual and institutional investors sabotage themselves over time. One way they do it is by chasing hot performance, and buy high, and abandoning investments during market declines and sell low.

The other major way investors hurt themselves over time is by not paying sufficient attention to investment costs. Expenses matter. As one of this week’s guests, famed financial thought leader Burton Malkiel tells us: “One thing I am absolutely sure about is the lower the fee… the more there’s going to be for me as the investor.”

Luckily there are products available to help us avoid both mistakes and more are being created every day. One of them, index funds are already a huge hit with investors and their popularity is growing by leaps and bounds.

According to Morningstar low cost, index based mutual funds and ETFs now have 31% of all fund assets up from just 14% a decade ago.

The other development, to counteract destructive investor behavior is in its early stages. Its automatic investing. It’s being used in target date funds. Some advisors use software that does it in portfolios. And we are now seeing the next generation, with so called robo-advisors. Barron’s recently did a cover story on it called “The New Face of Financial Advice” and highlighted four robo portfolio services: Betterment launched in 2010, Wealthfront launched in 2011, and two recent entries, Charles Schwab Intelligent Portfolios and a hybrid, Vanguard Personal Advisor Services, which requires the involvement of a human financial advisor to provide what Vanguard calls “behavioral coaching” to prevent clients from making those bad market timing decisions.

This week on WEALTHTRACK we are highlighting another service that also combines low cost investing, automatic rebalancing and the human touch.

It’s called Rebalance IRA and there are two personal reasons I am focusing on it. It has two legendary financial thought leaders on its investment committee, with impeccable credentials whom I have had the privilege of interviewing on WEALTHTRACK over the years. They both help develop, oversee and set policies for the portfolios offered to Rebalance IRA clients.

One of them, Charles Ellis has been a highly respected investment consultant to pensions, endowments and governments for decades. He is the author of numerous investment books including the classic “Winning the Losers Game” and “The Elements of Investing”, co-authored with his good friend and fellow financial legend, Burton Malkiel.

Professor Malkiel is also on the Investment Committee and is one of today’s guests. Malkiel is an emeritus Princeton University Economics Professor and author of the classic, “A Random Walk Down Wall Street,” now in its 11th edition.

Our other guest is no slouch himself. He is Mitch Tuchman, Managing Director and Co-Founder of Rebalance IRA which he launched in 2013. Rebalance IRA is a low cost, investment advisory service for accounts of $100,000 on up. As its name indicates it is specifically for retirement accounts and it automatically rebalances their portfolios. It currently has nearly $300 million under management. Before that Tuchman founded MarketRiders, the first online investment advisory service for do- it-yourselfers. It now oversees about $4 billion in accounts. For many years, Tuchman has also been a technology entrepreneur and consultant to numerous Silicon Valley companies.

I began the interview by asking him why he created Rebalance IRA.

MITCH TUCHMAN: I didn’t start off in this business. I moved to Silicon Valley to work at Atari many, many years ago, and after a successful career as a software entrepreneur, I sold a company and I had money to invest, but also a year earlier I had a very interesting experience in life. We had a child who was severely disabled, and I realized I needed to invest this money for 100 years, not just my own retirement, and the gravity of that task was weighing heavy on me as I went to look for options in the financial services industry, and I looked at all the fees and the structures, and I just never found anything that was satisfying to me. So it led to a seven-year career in the investment business, and what I discovered was a completely different method of investing, a whole different language, whole different approach to investing and it was startling to me. As I got more into it, I’m sure this has happened to you, Consuelo, and definitely I know it’s happened to you, Burt, people began to ask you, “What do I do?” because they know you’re someone in the business, and as I was asked I would start saying, “Well, let me see what you’ve got. Show me your portfolio,” and I was again shocked. I would see terribly overpriced mutual funds, horrible allocations, loads, lots of trading, and it began to get very upsetting to me. So I was also experiencing new financial instruments like exchange-traded funds which are innovations, low cost, almost zero trading commissions, and I started to see over time. You know what? The methods of the large endowments and foundations and successful retirement pools, the institutions that Burt has spent his life consulting with, those can now be brought down to everyday investors, and that’s why I got the entrepreneurial bug again and got back into the game of running a company that this time was a convergence of software and financial technology.

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