Any drawbacks to duplicating asset classes between Roth and 401K?


Confused about dryer sheets
Jul 24, 2007

I'm invested in two target retirement funds, the 2035 fund with T. Rowe Price (Roth), and the Freedom 2035 fund with Fidelity (401k). Obviously, I'm a hands-off investor; I prefer having professionals rebalance the funds over time.

My question: are there drawbacks to having two retirement funds that invest in similar asset classes? If so, and I got out of one of the funds (it would be Fidelity), any suggestions on an allocation strategy that would enable me to still be hands-off (as much as possible)?

I think you're fine with what you're in already. Both are fairly broadly diversified. Your only other option would seem to be to branch out into other funds that might cover areas not included or lightly weighted in either of those funds. More foreign equities, or small-cap value, or real estate etc.. Given that you want to be hands off, you are in the right funds. I don't think you'll be missing much.

Nope ... as long as the sum is what you want.

Now if you had a target retirement fund in your 401K and the same in your TAXABLE accounts, then that would probably not be good. The reason is that you want tax-inefficient bonds, TIPS, REITs in your tax-deferred accounts and tax-efficient large cap index funds, ETFs, tax-managed funds in your taxable. Thus in that case, the 401K should look quite a bit different than the taxable account.
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