When should you rebalance your retirement portfolio?

Rebalancing is a simple action with powerful results. Long-term investors generally don't disagree with that. They realize it provides an opportunity to take profits and buy into some weaker areas of their portfolio. Rebalancing keeps your risk at your targeted capacity and preference as well. Are you consistently doing it?

There are many opportunities for rebalancing -- really any date could suffice, but my preference is December 1st and May 1st. Markets are seasonal, but I personally don't believe the seasonality is strong enough to "sell in May and go away". However, you can take your profits in May and receive some of the benefit of that maxim.

December 1st is another seasonal opportunity. December is typically a strong month; therefore, you can rebalance in early December to take advantage of the strength that statistically occurs from December to April. Of course, if the year has been good, you will actually be lightening up on your equity, but this is all part of maintaining a disciplined exposure to stocks.

A third opportunity for rebalancing is tax-loss harvesting (only for non-retirement accounts) during a sell-off in markets. You may wish to take a losing fund and replace with a similar fund in order to realize losses. This will offset the potential taxable gains you may have from rebalancing the portfolio. You may want to set some price trigger alerts so that you know when the opportunity presents itself. Marketwatch has some free tools that allow you to get an email notification when a price hits a certain mark.

Need help? TruePath can help on an hourly basis to help you sort out your portfolio. Sometimes investors just need support to be confident in their choices. There is nothing wrong with that!

Retirement Rescue

Sometimes our investment actions don't work out well. Sometimes it can even be disastrous. I've talked to more than a few persons over the years who did one of these things:

1. Gambled on a risky trading system in forex (currencies), futures, options, or stocks and had massive losses.

2. Got out of the market at the bottom of 2008 and never got back in.

3. Heavily concentrated a portfolio in a trendy stock that then proceeded to drop precipitously.

What now?

Managing Tax-Deferred, Tax-Free, and Taxable Assets for Income

There are generally three types of accounts that an investor may build up during the accumulation period before retirement:

Tax-Deferred: Traditional IRA's, SEP IRA's, SIMPLE IRA's, 401k's (at least the employer portion), variable annuities (the gains are tax-deferred)

Tax-Free: Roth IRA's and Roth 401k (employee portion only)

Taxable: Individual and joint investment accounts with no special tax status

Where should you begin?

In this age of information, sometimes there is just too much. There are thousands of options for every product, service, and issue that you may want to consider. There are genuine, honest voices and those who are distorting the facts to sway you. This is what makes financial issues so difficult to act on. How do you know who to believe?

Buckets of money?

There are many stellar ideas that can fail through lack of precise execution. Investing is one of those enterprises that benefits from a method that has very specific rules and parameters. Freedom itself can be built into those parameters, but systems really do help us refrain from unintentional stupidity. Drawing income from investments makes that framework even more important. Selling investments on a regular basis means there are many possible mistakes to be made, so using a system can make a significant long-term difference.

How much can you draw from your portfolio?

Determining a safe withdrawal rate is one of the most debated and critical issues in developing a plan for your retirement income. That is, how much can you withdraw without running out of money? Over the last 10 years I have seen an article in a reputable financial planning magazine suggest a 7% annual rate and I've witnessed more and more experts pointing to a number as low as 3%. The answer is much more complicated than a number that applies to everyone. It really comes down to your portfolio and how much buffer you set for inflation.

Converting a Portfolio to a Stream of Income

Investors who build up a portfolio of stocks and bonds are faced with a problem as they enter into retirement: how do you turn investments into income?

The old solution was to live off the interest/dividends and never sell anything. This ensured that the portfolio would outlast the investor. Back in the 1970's and 1980's the dividend yield on the S&P 500 combined with bond yields was completely sufficient to provide loads of income. Can you believe the S&P 500 paid a dividend of over 5% in 1980? The current yield is about 1.8%. It's a lot harder to live on 1.8% of your investments than 5%. The ten-year US Treasury bond yielded 10% at that time.