I don’t particularly enjoy the administrative aspect of managing my portfolio. And my correspondence with readers suggests I’m not alone. Many people find rebalancing to be confusing and/or a hassle.

Some financial advisors provide a rebalancing service. But I don’t think that’s an ideal solution in this case. The value of a financial advisor is in the advice that he or she provides. If you don’t need any advice, it’s probably not worth hiring an advisor just to handle menial stuff like rebalancing.

Similarly, target retirement funds are a step in the right direction, but they still leave some things to be desired:

• At companies other than Vanguard, they cost too much;
• Even at Vanguard, it’s possible that none of the funds have an allocation that’s a good fit for a particular investor (for example, somebody who is in a high tax bracket and investing in a taxable account would probably want to use tax-free muni bonds for his/her bond allocation); and
• There’s always the possibility that the fund company will shift the fund’s allocation (away from the allocation you were counting on) without you noticing.

My Request: A Rebalancing Service

I’d like my brokerage firm to be able to handle rebalancing for me.

In its simplest form, this would just be an alternative method of placing buy/sell orders. Currently, when I rebalance, I calculate the dollar amount of each fund that I need to buy/sell, then I place a transaction for each fund.

Rather than using dollar amounts, and rather than having to execute multiple transactions, I’d like to be able to just enter a percentage for each fund, click one button, and have the account rebalance to that overall allocation.

Even better would be a “build-your-own-target-date-fund” concept. I’d love to be able to:

• Pick a group of funds,
• Pick a current allocation between them and an asset allocation glide path (i.e., what the allocation will be in the future), and
• Have my brokerage firm automatically rebalance back to that allocation for me on pre-determined dates.

Potential Hang-Up: Multiple Accounts

Admittedly, I’m not entirely sure how the service would most-ideally work in the case of a portfolio made up of multiple accounts. It’d be easy to set things up to rebalance each account to the desired allocation, but that’s not always ideal, as it can result in higher costs as a result of:

• Holding tax-inefficient funds in taxable accounts, or
• Not qualifying for the lower-cost admiral shares as quickly as could be done otherwise.

In addition, things get tricky when the investor has a retirement plan at work that has to be considered as well when calculating the investor’s overall asset allocation.

But I don’t think that’s necessarily a problem. It seems to me that as long as the current method of rebalancing is still offered, investors could simply use that approach when it’s a better fit.

What Do You Think?

For investors: What do you think of this idea? Would you use it? Do you have any suggestions for ways to improve on it?

For fund companies/brokerage firms: Is there anything stopping you from offering this service? I know of one brokerage firm (Folio Investing) that offers something like this, but why not the larger brokerage firms too (ideally those that offer commission-free trades)?

A reader writes in to ask:

“I’ve read several articles arguing that you should save for your own retirement before saving for your kids’ college. What is your opinion on this matter? Should IRA/401k contributions be a higher or lower priority than 529 contributions? And what factors play a role in the decision?”

I don’t always agree with conventional wisdom, but in this case I think it’s on-target. Retirement saving should usually be a higher priority than saving for one’s children’s college.

It’s About Flexibility

The primary reason that retirement saving should be a higher priority is that there’s a lot more flexibility when it comes to paying for college than paying for retirement. Specifically:

• You can often take out very low-cost loans to pay for college. There are no such loans available to pay for retirement.
• You get to choose when you go to college. You don’t always get to choose when you retire.
• There’s a possibility of college scholarships. There are no retirement scholarships.

In addition, IRAs offer a bit more flexibility than 529 plans in that amounts in IRAs (Roth, traditional, SEP, etc.) can be withdrawn without having to pay the 10% penalty if you use the money to pay for qualified higher education expenses. In contrast, if you were to withdraw earnings from a 529 plan in order to pay for retirement expenses, you’d (usually) have to pay a 10% penalty.

That said, if you’re already ahead of schedule with regard to retirement savings, it can be a great idea to start funding a 529–especially if your state offers tax breaks in addition to the Federal ones.

How to Know if You’re Ahead of Schedule

As we’ve discussed before, I have a strong distrust for most online retirement planning calculators. They tend to be based on such poor assumptions that the calculator’s final output ends up being meaningless.

Vanguard’s Retirement Income Calculator, however, is better than most. It can give you a rough idea of whether or not your retirement savings are on track. Still, it does make two questionable assumptions:

• It assumes a constant rate of return during the accumulation years, and
• It assumes you’ll need 85% of your pre-retirement income during retirement. (Note: If you have a better idea of how much monthly income you’ll need in retirement, you can simply adjust the “current annual income” input so that the “what you’ll need” output is more on-target.*)

Even if your retirement savings are on track though, I’d suggest erring heavily on the side of retirement savings rather than college savings. It’s easy for an investor who was on track saving for retirement to end up off track after an unexpected period of unemployment or after being forced into retirement several years earlier than expected.

*If you use the “Get your SSA.gov Social Security benefit estimate” button, having changed your income input will throw that estimate off. That said, Social Security benefits are calculated based on your 35 highest-earning years, not just your current income, so any estimate based only on your current income (even if it’s your correct current income) is unlikely to be of much value.

For somebody who makes a living online, I’m decidedly low-tech. I just got a scanner for the first time a couple weeks ago, and I’ve been scanning and shredding all my paper documents like tax returns, health insurance statements, and so on.

The downside of scanning such private documents and storing them on your hard drive is that they’re not safe. If your computer dies unexpectedly–or, worse, if somebody steals it–you’ve got a problem.

Fortunately, there’s an easy (and free) solution. (Hat tips go to personal finance blogger Nickel and the members of the Bogleheads forum for their help.)

Dropbox

Dropbox is a free service that allows you to store files online. I’ve been using it for quite a while now, and I’m very happy with it.

When you install Dropbox, it creates a folder on your computer that looks and works just like any other. That folder, however, is linked to your Dropbox account. When you save something in that folder, it automatically saves it online as well. And if you’ve linked other computers to your Dropbox account, it automatically updates the version of that file that’s saved on those other computers.

The problem with using Dropbox to store files with sensitive information is that there’s no option to password-protect the Dropbox folder on your computer. If somebody stole your computer, anything in that folder would be immediately accessible to the thief.

Enter Truecrypt

Truecrypt is a free encryption program. It allows you to create a “volume,” which is essentially an encrypted (password-protected) folder for storing files you’d rather keep private.

To the naked eye, your Truecrypt volume doesn’t even look like a folder. It just looks like a file with no file type (which you’ve ideally named something very unimportant-sounding) that gives a rather unhelpful error message when somebody tries to open it.

But when opened via Truecrypt (and using the appropriate password), the volume opens and works just like any other folder on your computer.

Truecrypt + Dropbox = Happy Storing

So, by creating a Truecrypt volume that holds all your sensitive files, then saving that volume in your Dropbox folder, you’ve backed up your important files online while at the same time keeping them safe from malicious users.

A few final notes:

• Dropbox’s normally lightning-fast upload speed slows to a crawl on large transfers, so be prepared to wait patiently if your Truecrypt volume is a big one.
• Dropbox isn’t necessarily the only solution. I’m sure there are other online storage services that would work equally well–perhaps even better.
• Nor is Truecrypt the only solution. There are several high quality free encryption programs.
• Truecrypt isn’t exactly intuitive to use. Fortunately, the online user manual has a super step-by-step walk through.
• Be sure not to lose your Dropbox password or the password to your Truecrypt volume.

Just a quick bit of housekeeping this morning.

I use a plugin that shows a message the first time you visit my site asking you to subscribe for email updates. When working as intended, it shows up once, and it gives you a cookie so that it never shows again for the next 365 days, regardless of whether or not you subscribed.

On each of the browsers I use, it seems to work just fine. But I’ve gotten a couple reports this weekend that the message is showing on every pageview for older versions of IE as well as at least one version of Chrome.

That’s definitely not the intention.

Two Questions for You

If any of you could provide me with some information, it would go a long way toward getting this fixed:

• Is the message showing just once for you? Or does it show on every single pageview?
• What browser (and version) do you use? And do you have it set to accept cookies? (If your browser is set to reject cookies, the message will show on every pageview, even when it’s working properly.)

Thanks! And Happy Halloween!

This is a guest post by Michael from Credit Card Forum

If you want the best cash back credit card, check out Mike’s recent post about the Fidelity Retirement Rewards American Express, which offers rewards worth 2%. But if you prefer debit cards over credit cards, you may want to consider the Merrill Lynch Signature Rewards debit card.

What makes it special?

As we all know, it’s rare to find a debit card that offers rewards. There are a few on the market, but the fine print often includes traps or tricks. For example, Chase recently started offering a debit card with “up to” 3% cash back, but it’s not nearly as good as it sounds — there’s an annual fee, cash back is only given on a few categories of spending, and you have to spend over $1,000 per month to qualify for the maximum rebate.

The Merrill Lynch debit card is different from the rest. For starters, it offers a flat 1% back on spending — for a credit card that may be average, but for a debit card that is almost unheard of. It also offers a wide array of benefits that, to the best of my knowledge, aren’t offered on any other debit card at the moment. There is an annual fee, but you won’t necessarily have to pay it (which I will discuss further in a moment).

A closer look at the rewards…

You earn 1 “Merrill Point” per dollar spent, and for most redemption options, each point equals a penny (so 1% rewards). Here’s what you can cash them out for:

• IRA Account: You can convert the points to cash which will be deposited into your Merrill Lynch IRA.
• 529 Account: Your points can also be converted to cash for your Merrill Lynch 529 account (college savings account).
• Fees & Commissions: If you don’t have a Merrill IRA or 529 account, you can still redeem your points to pay for fees and/or commissions posted to most other Merrill Lynch accounts during the current calendar year.
• Travel: They say you can “travel anytime, anywhere, any airline with no blackout dates starting at 25,000 Merrill Points”
• Miscellaneous: There are other options for merchandise, gift cards, etc.

A closer look at the benefits…

This debit card is a Visa Signature, which is something normally only found on credit cards. It comes with benefits for travel purchases made on the card, such as lost luggage reimbursement, trip cancellation insurance, medical evacuation coverage, common carrier travel accident insurance, and more. One benefit in particular I like (because I do not believe AmEx offers it) is the Hotel/Motel Burglary Coverage –- in the U.S. and Canada, you’re eligible for up to $1,000 in coverage if personal property is stolen from your room.

They also throw in phone concierge service and “Purchase Security” which covers eligible purchases made with the card for up to 90 days against theft, some types of accidental damage, etc.

What’s the catch?

For starters, you must have a Merrill Beyond Banking or Cash Management account. Your card will be linked to it and purchases will automatically be debited from its balance. Last but not least, there is a $95 annual fee which you may or may not have to pay. I know at least one accountholder who has the fee waived. Whether or not they will be willing to waive it likely depends on your balance and relationship with Merrill Lynch.

Verdict?

If you use Merrill Lynch for your brokerage account, their Signature Rewards debit card can be a great way to offset fees and commissions. Alternately, the card can be an easy way to add to your 529 college savings or IRA. That being said, if they’re not willing to waive the annual fee for you, it might not be worthwhile.

Michael runs CreditCardForum, which is a message board and blog for the discussion of credit cards and debit cards. Topics range from cash back credit cards to credit card customer service. On a personal note, traditionally Michael has invested in individual stocks based on intrinsic value, but due to time constraints, during the last few years he has been sticking with index funds.

I’ve mentioned my credit card a few times on this blog. It’s a Schwab credit card that gives 2% cash back on all purchases, which is then deposited into a Schwab brokerage account. (It’s actually the entire reason I initially opened an IRA with Schwab.)

Unfortunately for everybody who emails me to ask for a link to the application page, the Schwab 2% cashback card is no longer available to new applicants.

Fortunately, there’s a darned good replacement: The Fidelity Retirement Rewards American Express Card.*

2% Cash Back on All Purchases

Every time you charge $2,500 on the card, they deposit $50 into your Fidelity account. Almost any type of account works –Roth IRA, 529, taxable brokerage account, etc.  You can then invest the money however you please.

If you’re a regular reader of this blog, you know that I’m a big fan of investing via low-cost index funds and ETFs. But Fidelity’s line of “Spartan” index funds each carry a minimum investment of $10,000, so they’re not really an option if this is the only way you’ll be funding your Fidelity account.

Fortunately, Fidelity has a deal worked out with iShares to allow for commission-free trades of 25 different iShares ETFs, thereby allowing you to put your cash-back money to work immediately, at a low cost, and without having to contribute additional money to your Fidelity account if you don’t want to.

What’s the Catch?

As far as I can tell, there isn’t one — assuming, that is, that you’re planning to pay off the balance every month. If you ask me, the only real drawback is that American Express isn’t accepted as widely as Visa or MasterCard.

*I’m not being compensated by Fidelity or American Express for this article. But if anybody from either company is reading this and wants to change that, you know where to reach me.