Asset allocation and tax treatment

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radnor
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Asset allocation and tax treatment

Post by radnor » Sat Aug 12, 2017 1:03 pm

My current asset allocation is 60% U.S. stocks and 40% international stocks. However, I hold different parts of my portfolio in pre-tax, Roth, and taxable accounts. Since, for example, Roth money is "more valuable" (since it has already been taxed) than pre-tax money, should I try to take this into account with my allocation?

livesoft
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Re: Asset allocation and tax treatment

Post by livesoft » Sat Aug 12, 2017 1:05 pm

I don't, but some people do:
https://www.bogleheads.org/wiki/Tax-adj ... allocation

The main reason I don't bother is that my taxes are so low that I don't think it really matters to me.

But since you stated you didn't have any fixed income, I don't think it matters to you yet as well.

OTOH, maybe you are not concerned about taxes, but want highest growth and highest performing assets in your Roth(s). Those assets are the ones that lose the most value in a downturn. I don't like to lose money in my Roth IRA because it is not easy to contribute to it because of limits. So I only put assets that are going to gain a lot in my Roth. For instance, in 2016, I had small-cap value index fund in my Roth, but in 2017, I have VSS and VFSVX (small-cap foreign) and no small-cap value anymore.
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ofckrupke
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Re: Asset allocation and tax treatment

Post by ofckrupke » Sat Aug 12, 2017 3:38 pm

livesoft wrote:
Sat Aug 12, 2017 1:05 pm
I only put assets that are going to gain a lot in my Roth. For instance, in 2016, I had small-cap value index fund in my Roth, but in 2017, I have VSS and VFSVX (small-cap foreign) and no small-cap value anymore.
What are you going to have in your Roth in 2018?

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dwickenh
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Location: Illinois

Re: Asset allocation and tax treatment

Post by dwickenh » Sat Aug 12, 2017 5:11 pm

ofckrupke wrote:
Sat Aug 12, 2017 3:38 pm
livesoft wrote:
Sat Aug 12, 2017 1:05 pm
I only put assets that are going to gain a lot in my Roth. For instance, in 2016, I had small-cap value index fund in my Roth, but in 2017, I have VSS and VFSVX (small-cap foreign) and no small-cap value anymore.
What are you going to have in your Roth in 2018?
+1 :mrgreen:
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Peter Foley
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Re: Asset allocation and tax treatment

Post by Peter Foley » Sat Aug 12, 2017 8:13 pm

As noted you can do this either way. I have done the calculation a couple times just to note the difference. In my case with a healthy portion of our tax deferred in bonds, a post tax asset allocation is about 5% higher in equities than a pre tax. I would recommend doing it both ways once just to note the difference.

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Taylor Larimore
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Re: Asset allocation and tax treatment

Post by Taylor Larimore » Sat Aug 12, 2017 8:56 pm

My current asset allocation is 60% U.S. stocks and 40% international stocks. However, I hold different parts of my portfolio in pre-tax, Roth, and taxable accounts. Since, for example, Roth money is "more valuable" (since it has already been taxed) than pre-tax money, should I try to take this into account with my allocation?
radnor:

The Boglehead wiki answers your question:

Tax-Efficient Fund Placement

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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