It’s common knowledge amount most investors that you should rebalance your portfolio when it gets out of whack. So, if you want to be 60% stocks and 40% bonds, when stocks go up too much you sell stocks to buy bonds. Very roughly speaking, this keeps your portfolio risk constant over time. I think rebalancing generally makes sense. But below I want to do a quick thought experiment on what would happen if you never rebalanced. Interestingly, it will minimize your regret. Regret We all want to live a life without regret, but for a portfolio, I have a very specific mathematical definition of regr ..read more

Everyone trying to achieve financial independence has two levers: how much they earn and how much they save. Things like side hustles, increasing your income, or a second job might help on the earnings side, but in this post, I want to focus on savings. Specifically, I want to address why investment costs matter, and why it’s so important to keep them low. Small costs add up Let’s take two investors: Alice and Bob. Both invest $20,000 a year over the course of a 35-year career and achieve investment returns of 8.5% before expenses. Alice has annual investment expenses (including taxes) of 0.5 ..read more

The previous post described how to save on taxes with the yield split. By splitting your stocks or bond investments based on yield, with the higher-yielding portion going in a tax-advantaged account, you can reduce tax drag. But I glossed over quite a few details, which I’ll address in this post. The yield split adds complexity! This is unfortunate but true! You might have to spend an extra hour or two per year on your portfolio, and only you can decide if this is worth the savings. It’s made worse because most ETF providers divide the market by both value/growth and market cap, so you need 6 ..read more

Tax drag is the bane of an efficient portfolio. With expense ratios dropping closer to zero, managing tax efficiency becomes relatively more important. As you’ll see below, you can reduce your taxes by as much as half by allocating higher-yielding equities and bonds to a tax-advantaged account and lower-yielding to a taxable account. Tax efficient fund placement Like most bogleheads, the majority of my stock and bonds are in the three-fund portfolio: total US stock market, total international stock market, and total bond market.  I’ve seen over the years that most discussions about tax ef ..read more

As an introductory post, we’ll start with the most basic question: How much do I need to retire. A later post will address How do I live and invest so I can retire early? There is no single amount of money that works for everyone. It’ll never be as easy as “once you have $3M in the bank, you can retire”. The first step is to answer one question: how much do I spend every year? How much do I need to retire?Safe Withdrawal Rates Once you know your annual spending you work backward from this number to come up with a required retirement portfolio size. You do this using your safe withdrawal rate ..read more