Letting It Ride

Ken Cutler

I KISSED REBALANCING goodbye. In any case, I wasn’t consistent about rebalancing our retirement portfolio.

I’ve never attempted to maintain a specific stock-bond ratio. Whenever I did something akin to rebalancing, it was usually in response to some vague discomfort about the level of risk we were taking. Or it was based on a hunch about where the market would move in the near future—typically misguided.

This latter activity is also known as market timing. While periodic, methodical rebalancing is generally seen as virtuous by most financial experts I respect, trying to time the market is considered a no-no by just about all of them.

Somewhere along the line, I read that the best-performing financial accounts were those that had been forgotten. Turns out, the study used as the basis for that story might be apocryphal. Still, it seems clear that excessive trading and tinkering tend to be negative for returns. That’s certainly been my experience.

My current philosophy for my 401(k) and our two Roth IRA accounts—mine and my wife’s—is to just let them be. I don’t expect to be taking withdrawals for at least another decade, and hopefully even longer. In the case of the Roth IRAs, the most likely scenario is that they’ll pass intact to our children. Given the long horizon for these accounts, it makes sense to favor stocks. Why rebalance and perhaps undercut the growth potential?

Up until last year, I’d expected to be pulling money out of my old employer’s 401(k) plan, along with a rollover IRA that would be funded with my cash balance pension, to pay for retirement. In the years leading up to my recent retirement, I’d gradually made my overall portfolio a bit more conservative in an attempt to reduce the sequence-of-return risk that’s a big threat early in retirement.

But my plans changed. Increased interest rates in 2023 made selecting my pension’s monthly payment option more attractive. Rather than taking my pension as a lump sum, as I’d always planned, I traded in the entire cash payout for the annuity option. Although this decision drastically reduced my net worth, I no longer need to think about tapping our retirement accounts to live on.

Realizing I’d probably be taking the pension as an annuity, I reversed course last year and replenished our retirement accounts’ stock holdings a bit. Our combined retirement portfolio is now 57% in stocks. The Roth IRAs have a considerably higher stock allocation than the 401(k). I’m pretty satisfied with the mix of low-cost index funds we hold.

I suppose I could increase the stock holdings faster by transferring even more over from the bond funds, but I don’t plan to. I like being insulated from the emotional impact of short-term stock market drops, knowing that a decent portion of the portfolio won’t be affected. Absent a prolonged, severe disruption to the world economy, 10 or 15 years from now our portfolio’s stock weighting might be up to 75% and perhaps more. In that case, the portfolio should have grown enough that, even if the market experienced a temporary large downturn, there’d be no need for alarm.

Tinkering with our portfolio is a tempting retirement hobby. I have more free time and the spreadsheets are already built. Still, I’ve learned not to trust myself. In hindsight, my previous “clever” moves usually turned out not to be. Even though it might be fun to play around with the fund choices and allocations, I know the chances are good that I’d make things worse rather than better.

My current thinking is that, now I have our fund mix adjusted to my satisfaction, the portfolio can essentially run on autopilot for many years. I did manage to mostly leave my 401(k) account alone from 2017 to 2021, with favorable results: The balance ballooned 75%, powered by my S&P 500 index fund’s performance. Here’s hoping I have the discipline to continue doing nothing.

Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Follow Ken on X @Nuke_Ken and check out his earlier articles.

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