3-Fund Portfolio Asset Location Help

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koldude
Posts: 5
Joined: Sun Mar 20, 2016 12:53 am

3-Fund Portfolio Asset Location Help

Post by koldude » Wed Apr 19, 2017 11:47 pm

It's been a while since I've posted here, but my situation has changed and I see lots of conflicting information regarding asset location strategy, specifically with regard to the Vanguard 3-fund portfolio, often championed by Bogleheaders. Below is my current situation:

Emergency Funds: 10K in a savings account with Ally Bank
Debt: 0
Tax Filing Status: Single
Tax Rate: 25% Federal, 4.75% State
State of Residence: MD
Age: 26
Desired Asset Allocation: 90% stocks / 10% bonds
Desired International Allocation: 25% of stocks
Current Portfolio Value: ~55K

Current Retirement Assets:

Taxable at Vanguard (~10K):
18% Vanguard Total Stock Market Admiral Shares (VTSAX) (0.05%)

SIMPLE IRA at Fidelity (~15K):
27% Spartan 500 Index Fund Premium Shares (FUSVX) (0.045%)

Roth IRA at Vanguard (~30K):
40% Vanguard Total Stock Market Admiral Shares (VTSAX) (0.05%)
5% Vanguard Total International Stock Investor Shares (VGTSX) (0.18%)
10% Vanguard Total Bond Market Investor Shares (VBMFX) (0.16%)

Contributions:

New Annual Contributions
$5,500 Roth IRA
$12,500 SIMPLE IRA
$10,000 Taxable

Questions:

1. Am I making the most use of Asset Location, given my 3 available accounts? The internet seems to be split regarding whether bonds should be going into tax-advantaged accounts or taxable. Also, if it ends up being more advisable to keep bonds in a tax-advantaged account, does it make any difference whether I put them in the Roth vs the SIMPLE IRA?

2. Should I prioritize my contributions to my Roth towards getting VGSTX or VBMFX to the Admiral Shares level, or continue to invest in the same proportions I am now? (Currently, for each new Roth contribution, I buy 70% VTSAX, 20% VGTSX, and 10% VBMFX).

I would love to hear your feedback. Thanks in advance!

retiredjg
Posts: 30844
Joined: Thu Jan 10, 2008 12:56 pm

Re: 3-Fund Portfolio Asset Location Help

Post by retiredjg » Thu Apr 20, 2017 7:24 am

koldude wrote:1. Am I making the most use of Asset Location, given my 3 available accounts? The internet seems to be split regarding whether bonds should be going into tax-advantaged accounts or taxable.
I think what you have is fine. There are possibly times when using tax-exempt bonds in a taxable account is better for high wage earners. I do not believe it would do anything beneficial for you.

Also, if it ends up being more advisable to keep bonds in a tax-advantaged account, does it make any difference whether I put them in the Roth vs the SIMPLE IRA?
I would rather not fill a Roth IRA with bonds, but I don't think it is harmful to have some bonds in Roth IRA. For the small slice you are holding, it probably makes no difference at all. Putting the bonds into the SIMPLE makes good sense too. Just suit yourself.

2. Should I prioritize my contributions to my Roth towards getting VGSTX or VBMFX to the Admiral Shares level, or continue to invest in the same proportions I am now? (Currently, for each new Roth contribution, I buy 70% VTSAX, 20% VGTSX, and 10% VBMFX).
Continue on. Again, this will matter little. The difference in cost for $9,999 Investor shares and $10,000 Admiral shares is probably about $10. Everything will reach Admiral shares in good time.


You are already doing at least 3 of the most important things about investing (saving a lot, wide diversification, using your tax-advantaged accounts to the max). These other things are not worth worrying over. I don't mean you should not wonder and ask these questions. I mean they are of little importance in the long run, especially when compared to what you are already doing.

You are doing a great job. Just keep it up!

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Tyler Aspect
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Location: California
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Re: 3-Fund Portfolio Asset Location Help

Post by Tyler Aspect » Thu Apr 20, 2017 11:41 am

the preferred location for each investment type in order of most preferred location to least preferred location according to US tax laws:
  • US stock: Roth IRA, taxable, traditional IRA
  • international stock: taxable, Roth IRA, traditional IRA
  • bond: traditional IRA, Roth IRA, taxable
  • REIT: Roth IRA, traditional IRA, taxable
The effect of placing assets in the most preferred location while avoiding the least preferred location is to reduce your current and future tax bills.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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