There's Opportunity in 'Over-Rebalancing': Jonathan Clements

Jiab was extremely frugal. That meant not only could she save a large portion of her income, but she needed a smaller nest egg in order to pay for her retirement years.

There’s a rule of thumb that you need 80% of your pre-retirement income to retire in comfort. But if you’re a super-saver and regularly sock away 20% or 25% of your income, it should be entirely possible to retire early with a relatively small nest egg.

William Bernstein, co-founder of Efficient Frontier Advisors, and author of “The Four Pillars of Investing,” writes that once you’ve “won the financial game, the goal is not to get richer but to avoid ending up poor. So stop playing with money you really need.” Do you agree?

If you have enough money to carry you through the rest of your financial life, you shouldn’t continue to take unnecessary risks.

That said, I can see a case for dividing a retirement portfolio into two: a portion that’s going to pay for your retirement, managed in such a way that there’s no risk that you’re going to run out of money.

Take the portion that you think you’ll never need to spend and invest it much more aggressively because you plan to [perhaps] bequeath that money to your family or a favorite charity.

William Bernstein also recommends: “Mentally compartmentalize your portfolio into safe assets versus risky assets.” Only two buckets? Do folks need more than that?

There are different approaches. Some people have three or even four buckets to cover their retirement income needs.

For example, a short-term bucket, an intermediate-term bucket and another bucket to cover 10 years and beyond.

But I think the basic notion, the one that makes sense to me, is that you need two buckets, one for your long-term investment money.

As I head toward retirement, my goal is to have five years of spending money in high-quality short-term bonds and the vast majority of my remaining money in the stock market.

So, I’ll know that whatever happens in the market, I’ll be fine for the next five years.

Adam Grossman, founder of Mayport Wealth Management, views the stock market as “a hall of mirrors — and that’s on a good day!” he writes. Please explain.

He’s referring to [the idea that] what the stock market does on any particular day cannot be explained by a single factor.

At the end of the day, some poor financial journalist has to write a narrative explaining why the market went up or down.

But the truth is you can’t summarize what’s going on in the financial markets with a single story. It’s far too complicated for that.

Adam is saying that markets are beyond anybody’s ability to forecast or fully understand.

Mr. Grossman reveals that when he worked with a stockbroker in the 1990s, his “whole portfolio went, more or less, to zero.” It was “a disaster.” But the experience gave him motivation to become a financial planner. Interesting, isn’t it?

Many of the stories in the book are about people making mistakes early on. One of the lessons is that even if you make early mistakes, there’s still ample opportunity to recover.

If you adopt simple investment principles and are a diligent saver, you can recover from those early missteps.

That’s sound advice, but people’s emotions often mess up that logical way of handling their money. Right?

That’s one of the key points in “My Money Journey.” Every one of the writers’ journeys is intensely personal and reflects their upbringing, relation to financial uncertainty, desire for big wins [and so on].

Emotions certainly play a huge role, but we investors need to figure out how to make our peace with these emotions so we do indeed get to retirement successfully.

Some people get it done on their own; others need a financial advisor.

William Ehart, a journalist and longtime investor, writes that during the financial crisis, he lost “almost everything through a stomach-churning series of horrible decisions.”

Further, he was laid off at the end of 2009, and the next year, went bankrupt. He was a drinker, he says. He invested unwisely in gold and energy ETFs.

But now he’s in index funds and makes “side bets.” He has decided to hire a financial advisor. Do you know whether he’s done that?

He has. A lot of people struggle with money. People spend too much. They make foolish investments. Bill was an impulsive investor, and it took him a number of years to get his impulsivity under control.

But it’s not an uncommon story. I’ve met countless investors who get a thrill from investing and aren’t able to rein it in.

Bill was able to and decided he would do even better if he had a financial advisor to help him.

Greg Spears, certified financial planner, is deputy editor of HumbleDollar and an adjunct professor at St. Joseph’s University. Earlier, he was a senior editor at Vanguard Group. In describing his vigilance about money, he notes a critical conversation with his wife about checking accounts and taxes.

When is it a good time for couples to schedule a discussion about finances?

It’s probably better to have frequent small conversations than a big, in-depth, sit-down discussion about your financial future or what you should be doing with your money.

Husbands and wives should be talking about finances all along the way to make sure they’re on the same page.

A couples’ counselor told me that the No. 1 reason couples came to her was because of financial issues.

Money fights are probably much more frequent than you might suspect.

(Pictured: Jonathan Clements)