Asset Allocation Across Accounts

[GatorBuzz]

Please pardon the alliteration in the thread title.


Okay, as anyone can see here (http://www.early-retirement.org/foru...ong-27909.html ) I have only been investing for about a year. I am now stuck and have done various internet searches, but can’t find what I’m looking for.

In many of the books I’ve read, I’ve seen mention of treating all your accounts like one contiguous account AFA asset allocation goes. Put tax-efficient funds in your taxable accounts and tax inefficient funds in 401k and Roth, etc. Simple enough and makes sense. But I’m confused about spreading the asset allocation across all accounts in total. Do you have, for example, 1-4 funds in the His Roth and 1-4 in the Her Roth and 1-4 in the 401k that completes your AA?

As it stands now, I’ve got basically the asset allocation I want in my 401k and our Roths are in VG Target Retirement Funds. I also have a taxable account with VG Total International. As we build up our Roths, I am wondering if I should break out of the Retirement Fund so that I can slice and dice the index funds that I want at the percentage I want. There are classes not currently in the Retirement Fund that I’d like to include. If I had to boil this convoluted post down to one question, it would be this: Do you spread your asset allocation over all your accounts or do you treat each account separately? In either case, why? Okay, that’s two questions.

I’m looking to see how others do it and the reason they do it that way.

Thanks in advance.

[Darryl]

I only have one AA target that is made up of all my investments. Every account does not mirror the target AA.

As you noted you want to decide what type assets to hold in taxable and what assets to hold in nontaxable. The next place I look is to my 401k (because the choices are the most restricted) I have a choice of about a dozen different funds but several of them have high expense rate's and several represent asset classes I do not need any more of, so I am currently only buying three of these funds. Since these three do not match my AA target I then move on to the Roth's and taxable accounts to "fill in" the gaps.

As to the why, I want to own good funds in the AA I've decided on. I want to be efficient about taxation and I want to keep expenses down. There are some tradeoffs for me with these three priorities. I want to hold the target AA but when it comes to taxes I can tolerate some ineffiency if the investment is performing well and I'm willing to hold some FI in taxable (not my core strategy). I also want my er around 0.50 (currently 0.66) but I'm willing to pay a higher er on some items if I believe they will perform or it's just a more expensive class. I am now holding my breath for the rest of you guys to pick on me for the er being too high.

[ats5g]

GB,

I definitely consider all our retirement accounts as one portfolio. We've currently use the following funds:

DW 401(k):
Int'l large blend
small/mid blend
not used: US Large blend, Total Bond fund, stable value, life cycle funds

My 401(k):
US large blend
US large value
Int'l large value
Total Bond fund
[/u]not used[/u]: Balanced funds, stable value, Large growth funds, high cost funds

My IRA:
TIPS fund

I could certainly make things easier by not using the value funds, but I want a value tilt. I could also just use the Lifecycle and Balanced funds in each account, but what fund would that be?

btw - our weighted average expense ratio is 0.15% [thanks to the TSP].

- Alec

[LOL!]

Our household of 4 has about 16 different 'accounts' filled with about 50 different investments. That reads like a lot to deal with for asset allocation, but it is not what you think.

We have a single (i.e. 1 (one)) asset allocation for the whole kit-and-kaboodle. Many of the accounts have only one investment in them that will never need to be changed. An example is my traditional IRA, it contains about 1% of our total portfolio and will always be 100% a bond fund. The same thing goes with my spouse's inherited IRA: it will always have be 100% bond fund.

With most accounts and investments never needing to be looked at, we are left with just 3 accounts that need rebalancing among them: two 401k's, and one of our taxable brokerage accounts.

We have all our investments entered into the M* portfolio tool, so that we can do portfolio X-ray's with a click of the mouse and see our asset allocation. Of course this AA includes all the 'untouchable' accounts and funds as well.

My 401k has only 2 funds in it: a small cap value fund and an intermediate term bond fund. My spouse's 401k has a REIT, a small cap value fund and an international value fund.

Our taxable account has exchange-trade funds in it: VEU, SPY, MDY, IWM, EEM, DLS, GWX are some of the holdings. Most of the recent transactions are for tax-loss-harvesting purposes.

We do it this way because of tax-efficiency and simplicity. We are trying to have no taxable investment income or capital gains. We want Schedule B to be $0 and Schedule D to always have a loss that can be deducted against ordinary income.

For more help on using these tools and AA in general, there is this thread:
http://www.early-retirement.org/foru...tml#post578722

[Animorph]

I do it both ways. Nothing easy for me!

For the retirement accounts (3 taxable accounts and 2 401k's) I include all the funds in one AA. Most of the common assets and cash in the 401k's and most of the uncommon ones in the taxable accounts. If you looked at any one account it would look very unbalanced.

I also have a taxable account for me and one for DW, with our individually held investments. They both have the full AA set in them. So each of the three investing pools has a complete and balanced AA.

Most of this is forced by circumstances and investing history (started with Vanguard and continued with Fidelity and added Wasatch Funds to invest directly for better small-cap fund access), but there's no way I want to (or can) implement the full AA in each account.

Dan

[innova]

I consider all my holdings as one AA. That includes 2 403b's (mine and wife), roths, and a taxable brokerage account.

One thing nobody has pointed out: Hold your funds with the highest expected returns in your Roth IRA if possible. Idea being that a dollar in your roth is worth more than a dollar in a 403b/401k/IRA etc.

[mathjak107]

we run two portfolios, an etf mix and an actively managed mix. we then divide those into 1 of 3 buckets based on years of spending money before the stock bucket has to be siphoned from.

bucket 1----7 YEARS WORTH cd's , money markets,bank accounts

bucket 2 7 YEARS WORTH

TIP ETF INFLATIONPROOF TREASURIES(sold off tuesday in the mini crash,will add again when drops

UNLISTED REIT PAYING 8-1/4%

FIDELITY HIGH INCOME

FIDELITY NEW MARKET INCOME

SHY 1-3 YR TREASURYS
BND BOND INDEX
TLT LONG TERM BOND INDEX (sold off tuesday in the mini crash,may add again when drops

BUCKET 3 GROWTH
ACTIVELY MANAGED MIX
GSG COMMODITIES
ICF REIT PUBLICLY TRADED
FIDELITY VALUE
FIDELITY EQUITY INCOME
FIDELITY SMALL CAP GROWTH
FIDELITY TOTAL INTERNATIONAL EQUITY
FIDELITY GROWTH CO

ETF MIX

PWB POWER SHARES LARGE CAP GROWTH
VTI VANGUARD TOTAL MARKET INDEX
IVV S&P 500 INDEX
PID POWER SHARES INTERNATION DIVIDEND ACHIevers

[GatorBuzz]

Thanks very much to everyone who responded. I honestly didn't know what I was going to get as responses. This is great, salient information. I really appreciate the thought and effort that went into your replies.

Your answers cumulatively cleared up my confusion. I have a lot of work to do to get this to where I want it, but I guess that's the fun of it. Once I get everything set, I'll post back in this thread to show you what I came up with.

Thanks again.

[jIMOh]

Quote:

Originally Posted by GatorBuzz Please pardon the alliteration in the thread title. Okay, as anyone can see here (http://www.early-retirement.org/foru...ong-27909.html ) I have only been investing for about a year. I am now stuck and have done various internet searches, but can’t find what I’m looking for. In many of the books I’ve read, I’ve seen mention of treating all your accounts like one contiguous account AFA asset allocation goes. Put tax-efficient funds in your taxable accounts and tax inefficient funds in 401k and Roth, etc. Simple enough and makes sense. But I’m confused about spreading the asset allocation across all accounts in total. Do you have, for example, 1-4 funds in the His Roth and 1-4 in the Her Roth and 1-4 in the 401k that completes your AA? As it stands now, I’ve got basically the asset allocation I want in my 401k and our Roths are in VG Target Retirement Funds. I also have a taxable account with VG Total International. As we build up our Roths, I am wondering if I should break out of the Retirement Fund so that I can slice and dice the index funds that I want at the percentage I want. There are classes not currently in the Retirement Fund that I’d like to include. If I had to boil this convoluted post down to one question, it would be this: Do you spread your asset allocation over all your accounts or do you treat each account separately? In either case, why? Okay, that’s two questions. I’m looking to see how others do it and the reason they do it that way. Thanks in advance.

I have one asset allocation. It is

43% domestic large cap
15% domestic mid cap
15% domestic small cap
(73% domestic stock)
15% foreign large cap
10% foreign small cap
(25% foreign stock)
2% bonds

Each account has a similar high level allocation, depending on the choices available, adjustments which make sense are made.

My 401k is 73% domestic stock, 25% foreign and 2% bonds. No mid cap fund availble, so small cap gets 25% and company stock gets 5%. Instead of small cap foreign, I use an emerging markets fund for this portion.

Wife's 401k is 75% domstic stock, 25% foreign equity. She has no good mid cap fund, so again I overweight the small cap allocation above to 25% and add 5% to her company stock.

We each have a rollover IRA. My rollover is 73-25-2. In addition because I can pick and choose the funds, I use 43-15-15-15-10-2 allocation.

We each have a Roth. The allocation is combined across Roths, because this is smallest balance of the accounts. I hold all the domestic positions, and some foreign positions. Wife holds rest of foreign positions.

The key is "why".

From 1997-present I have worked at one employer with 4 name changes because of buyouts, mergers, acquisitions and another merger. 401k changed each time (current 401k is the worst of the 4). If I changed the fund selections 4 times in 11 years, that would be too much to track. After 3rd 401k in 8 years, I decided to allocate each account as it's own entity.

From 1998-present my wife had 5-7 jobs. First two years were tough (maybe 3-5 employers in 2-3 years). Again a changing 401k and only cherry picking the best funds would have affected 4 accounts. Too much work.

Add to this some funds I chose for my Roth are currently closed (RPMGX for example) and no way I would give that fund up because a 401k had a good mid cap offering.

The cons-

We probably own close to 20 funds across all accounts. I do own the same funds in my rollover and Roth to a degree. All IRAs are with T Rowe Price.

Some of the 401k funds were chosen because they were the only choice for that asset class.

the pros

I can get one account statement and rebalance that account without regard to the others.

My 401k is rebalanced 2X per year. In June I adjust contributions, in December I buy/sell as needed to rebalance.

My Roth is rebalanced based on contributions each month. My Roth maxes out in August each year (I send in $625/month). The tweaks each month keep asset allocation in line.

My wife's 401k is rebalanced 1X per year by me by buying and selling.

I consider the Roth IRA the core of the whole invesment puzzle. These are the funds not subject to RMDs, and we want maximum growth in the Roth. IMO you should have Roth fully allocated at minimum so it grows the largest. Roth is "densest" investment possible- as withdraws are tax free (40k from Roth is better than 40k in a taxable account is better than 40k in a 401k/Traditional IRA).