help with asset allocation across multiple accounts

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bogleboyz
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Joined: Sat May 21, 2016 2:30 am

help with asset allocation across multiple accounts

Post by bogleboyz » Sun Mar 12, 2017 11:17 pm

Hi
I am some what new to this forum and would appreciate ur input regarding my portfolio
I am trying to get my financial house in order and would love to get your feedback on my portfolio and the location of the assets

so far i have been using the fidelity freedom funds 2045 fund (FFKGX) (ER 0.64) in my 401k and 457 at fidelity.
I also have roth IRA account for myself and my wife, plus a taxable account at Vanguard. I use the Vanguard personal advisory service for the vanguard accounts (they charge 0.3%). Unfortunately they dont help much with the non-vanguard accounts.

I want to take the money out of the Fidelity freedom funds and use the low cost Vanguard funds in the 401k and 457

Emergency funds: 6 months
Debt: $0
Tax Filing Status: married filing jointly
Tax Rate: 39% Federal, 0% State
Age: 40
Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 25% of total portfolio


current balances are as follows
401k = 296,405
457 = 94,096
my roth IRA = 31,404
wife roth IRA = 36,312
Taxable vanguard account = 556,181

total for all accounts = 1024,773

I desire a 75% stock and 25% bonds asset allocation

I would like the following allocation

For Stocks
50% US stock will be divided as follows
17.5% Vanguard Total stock market index fund
10% Vanguard Extended market index fund
5% Vanguard Value index fund
5% Vanguard small value index fund
5% vanguard small cap index fund

7.5% Vanguard REIT index fund

25% international stocks will be divided as follows
15% Vanguard Total international stock market index fund
5% Vanguard emerging market index fund
5% Vanguard International small index fund

For Bonds I would like to divide it between an index bond fund and TIPS.

12.5% Vanguard total Bond market index fund (available in 401k) or some other bond fund (I am open to suggestions)
12.5% in TIPS

Now comes the hard part of deciding which funds go into which account

I decided to put the reit in the roth accounts for total of $67,716

The extra REIT amount which did not fit into the roth accounts , I placed it in the 401 k which is $9,141

For the 401 k and 457 I decided to place the funds as follows

Vanguard extended market index fund = $102,447
Vanguard value index fund = $51,238
Vanguard small value index fund = $51,238
Vanguard small cap index fund = $51,238

Vanguard emerging market index fund = $51,238
Vanguard International small index fund = $51,238

Vanguard REIT index fund= $9141 (amount in REIT fund which did not fit in the ROTH IRA accounts)

The remaining balance of 33,068 will be invested in the Vanguard Total Bond market index fund

For Taxable account
Vanguard Total Stock market index fund = $179,335
Vanguard Total international stock market index = $153,715
TIPS = $128,096
Bonds $95,028


does this strategy in terms of asset "location" make sense.
i am new to this and may be totally missing something obvious.
I understand that bonds generally go in the retirement accounts but I thought it is more important to place the value index funds in the retirement accounts. I am open to suggestions

I would really appreciate your feedback . I am open to suggestions if you think there is a better way to locate these funds or if there any suggestions to improve the portfolio.

Additional layer of complexity is added by the fact that my 401k/457 has vanguard s & p 500 index fund, vanguard extended market index fund and vanguard total bond market index fund but does not have any of the other vanguard funds mentioned above. However I can use any fidelity fundsthrough brokerage link for no additional fees. Unfortunately for using vanguard funds through the brokerage link I will have to pay additional transaction fees which I would like to avoid



Thanks a lot

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David Jay
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Location: Michigan

Re: help with asset allocation across multiple accounts

Post by David Jay » Mon Mar 13, 2017 8:23 pm

You are off to a great start.

A couple of thoughts:

Bonds and TIPS are not normally held in taxable, they are not tax efficient products.

I am not a big fan of 5% allocations. I call them "window dressing" because they make your portfolio look pretty but they don't do anything. For instance, I would go 10% small cap value instead of splitting between 2 funds
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livesoft
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Re: help with asset allocation across multiple accounts

Post by livesoft » Mon Mar 13, 2017 8:27 pm

Either use tax-exempt muni bond funds in taxable or put your bond funds in a tax-deferred account like the 401(k) or 457.
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bogleboyz
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Joined: Sat May 21, 2016 2:30 am

Re: help with asset allocation across multiple accounts

Post by bogleboyz » Tue Mar 14, 2017 11:36 pm

David Jay wrote:You are off to a great start.

A couple of thoughts:

Bonds and TIPS are not normally held in taxable, they are not tax efficient products.

I am not a big fan of 5% allocations. I call them "window dressing" because they make your portfolio look pretty but they don't do anything. For instance, I would go 10% small cap value instead of splitting between 2 funds


Thanks for your suggestions

looking at my portfolio, where would you place the bonds and funds?
If i place them in the 401/457, then i wont have enough space in the tax sheltered accounts for the value index funds,REITs etc that i mentioned.
I started off by placing REITs in the roth IRA and 401/457 and then added the value index funds in the space left in the 401/457.
If i place bonds/TIPS in the 401/457 then i will have to keep the value index funds i mentioned in the taxable........i was under the impression that the value index funds are also not very tax efficient?

not sure whats the best strategy here.

bogleboyz
Posts: 64
Joined: Sat May 21, 2016 2:30 am

Re: help with asset allocation across multiple accounts

Post by bogleboyz » Tue Mar 14, 2017 11:39 pm

livesoft wrote:Either use tax-exempt muni bond funds in taxable or put your bond funds in a tax-deferred account like the 401(k) or 457.



Thanks for your suggestions

do tax exempt muni bonds make sense if i dont have any state tax tax?

If i place the bonds/TIPS in the 401/457, then i wont have enough space in the tax sheltered accounts for the value index funds,REITs etc that i mentioned.
I started off by placing REITs in the roth IRA and 401/457 and then added the value index funds in the space left in the 401/457.
If i place bonds/TIPS in the 401/457 then i will have to keep the value index funds i mentioned in the taxable........i was under the impression that the value index funds are also not very tax efficient?

I welcome any suggestions regarding betters placement of funds in the different accounts

livesoft
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Re: help with asset allocation across multiple accounts

Post by livesoft » Wed Mar 15, 2017 8:04 am

bogleboyz wrote:do tax exempt muni bonds make sense if i dont have any state tax tax?

Only if you want to save yourself 39% in Federal income taxes. You do understand that you hold such tax-exempt muni bond funds in your taxable account, right?
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bogleboyz
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Re: help with asset allocation across multiple accounts

Post by bogleboyz » Thu Mar 16, 2017 10:53 pm

livesoft wrote:
bogleboyz wrote:do tax exempt muni bonds make sense if i dont have any state tax tax?

Only if you want to save yourself 39% in Federal income taxes. You do understand that you hold such tax-exempt muni bond funds in your taxable account, right?


I understand that i dont have to pay federal taxes on muni bond funds.

regarding my portfolio what would you recommend
keeping the bonds in the 401/457 and getting rid of the value index funds (as i wont have enough space for them in the 401/457). Instead i can invest in the total stock market which can be held in the taxable account because of its tax efficiency/

or keeping the proposed assset allocation and switching to tax exemp muni funds instead of bonds and TIPS in the taxable account

also is ROTH IRA a good place for REITs?

thanks

livesoft
Posts: 56581
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Re: help with asset allocation across multiple accounts

Post by livesoft » Fri Mar 17, 2017 7:10 am

I recommend that you truly understand how much taxes you would pay by having a value fund in taxable and a total stock market index fund in taxable. If you would have the same taxes either way or maybe only a very slight difference, then I would think that you would not worry about value funds in taxable. Right now, it appears that you are going by hearsay when you think value funds are not tax efficient.

A Roth IRA is a good place for a REIT index fund if you want to own such funds. A Roth IRA is a good place for all investments. A taxable account is a bad place for a REIT fund.

I would not put TIPS in a taxable account.

This phrase doesn't make sense: "... and switching to tax exemp muni funds instead of bonds and TIPS in the taxable account" because tax exempt muni funds are bond funds.
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bogleboyz
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Re: help with asset allocation across multiple accounts

Post by bogleboyz » Sun Mar 19, 2017 12:21 am

livesoft wrote:I recommend that you truly understand how much taxes you would pay by having a value fund in taxable and a total stock market index fund in taxable. If you would have the same taxes either way or maybe only a very slight difference, then I would think that you would not worry about value funds in taxable. Right now, it appears that you are going by hearsay when you think value funds are not tax efficient.

A Roth IRA is a good place for a REIT index fund if you want to own such funds. A Roth IRA is a good place for all investments. A taxable account is a bad place for a REIT fund.

I would not put TIPS in a taxable account.

This phrase doesn't make sense: "... and switching to tax exemp muni funds instead of bonds and TIPS in the taxable account" because tax exempt muni funds are bond funds.


Thanks for your reply
How do i get the information regarding how much taxes i would pay by having the particular value index funds i mentioned in taxable vs total stock market in taxable?

also for REIT index fund, is it preferable to place it in a roth account vs 401k/457? i have access to fidelity reit index fund through brokerage link in the 401. or i can use the Vanguard reit index fund in my roth

thanks a lot for your help

livesoft
Posts: 56581
Joined: Thu Mar 01, 2007 8:00 pm

Re: help with asset allocation across multiple accounts

Post by livesoft » Sun Mar 19, 2017 6:53 am

bogleboyz wrote:Thanks for your reply
How do i get the information regarding how much taxes i would pay by having the particular value index funds i mentioned in taxable vs total stock market in taxable?
You read and understand this thread: viewtopic.php?t=208818 , then you download the spreadsheet linked in that thread and use it.

also for REIT index fund, is it preferable to place it in a roth account vs 401k/457? i have access to fidelity reit index fund through brokerage link in the 401. or i can use the Vanguard reit index fund in my roth
I don't think there is a preference. Either place would work fine. It probably depends more on where you have room to put the REIT fund after filling up those accounts with other things.

thanks a lot for your help
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grabiner
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Re: help with asset allocation across multiple accounts

Post by grabiner » Sun Mar 19, 2017 7:43 am

bogleboyz wrote:How do i get the information regarding how much taxes i would pay by having the particular value index funds i mentioned in taxable vs total stock market in taxable?


For a stock index fund, you can assume that there will be very little in capital gains. Take the fund's SEC yield, and look up the qualified dividend percentage from the fund provider's web site. This tells you what percentage of the fund's yield is qualified dividends, and what percentage is non-qualified. Multiply each by your appropriate tax rate.

Most taxpayers in the 39.6% bracket have enough itemized deductions that the Pease limitation does not max out, and thus every $1 in income reduces itemized deductions by $0.03. However, this might not apply to you since you pay no state tax; state tax is the biggest Pease-limited deduction for high-income taxpayers.

In your 39.6% bracket, the tax rate is 23.8% on qualified dividends (including the 3.8% Medicare surtax), or 25.0% if you are effected by Pease. The tax rate is 43.4% on non-qualified dividends, or 44.6% if you are affected by Pease.

If you sell the stock, you will also pay the 23.8%/25.0% tax on capital gains when you sell, but this is far in the future, and most tapayers in high brackets don't sell a large portion of their stock, leaving it to heirs or charity instead.
David Grabiner

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