Asset Allocation and Sheltered Accounts

[Midpack]

Apologies if this has been covered here, but I've struggled with this for years (a post by Audrey1 in another thread is prompting me to ask).

I am underweighted in some asset classes, but it's because my available sheltered accounts are fully invested and the asset classes I am short on are not efficient in taxable accounts. Until this year at least, I was in a high tax bracket so I have let my taxable:sheltered drive my AA to some extent. However I have consiously shifted the line knowing where my holdings fall on the tax efficiency continuum. How do others resolve this dilemma? Details below, although not sure if it's necessary.

Class	Target	Actual	Acct
US Large	23.4%	25.7%	Taxable
US Small	13.4%	14.1%	Taxable & TIRA (Sm Val)
Intl	13.4%	13.0%	Taxable
Emer Mkts	6.7%	7.1%	Taxable
REIT	3.3%	2.0%	TIRA
VGENX	3.3%	2.2%	TIRA
Bonds	32.5%	30.2%	401k
Cash	3.9%	5.9%	Taxable

 

[Spanky]

The differences between the actual and targets do not appear big. I would worry about it unless it is more than 5%.

 

[walkinwood]

For me, asset allocation would take precedence over location (ie. taxable v/s deferred).

Spanky is right - your deviation from plan is too small to worry about right now. I use a 20% tolerance bands for individual asset classes, and a 5% band for bond/equity.

 

[Midpack]

For me, asset allocation would take precedence over location (ie. taxable v/s deferred).

Spanky is right - your deviation from plan is too small to worry about right now. I use a 20% tolerance bands for individual asset classes, and a 5% band for bond/equity.

I use 25%/5% myself. You'll note that REIT & VGENX are outside the 25% band.

 

[LOL!]

I give a larger band to my REIT holdings for a couple of reasons:

First, other stock index funds in my allocation hold REITs. For example, small cap value and mid cap value have significant amount of REITs already. And by definition Total Stock Market has REITs as well.

Second, our REIT holdings are in "set-and-forget" mode, so I don't bother to consider them in rebalancing at the present time. This mode involves a TIAA transfer payout annuity over the next 8 years where I exchange a chunk of TIAA traditional annuity (i.e. fixed income) for a TIAA real estate account shares (i.e. REIT) each year. The TIAA RE account is losing money fast so that buying more each year is not a problem (or is it?).

Third, I since REITs are found elsewhere, if I needed more tax-sheltered space for fixed income, then I would reduce the amount of REITs I had. Same goes for VGENX. There is energy elsewhere in the taxable part of the portfolio anyways.

But I'm not a good example of all this since I have plenty of tax-sheltered space to work with.