Asset allocation across time horizons and investment vehicles.

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jasonrecite25
Posts: 47
Joined: Tue Apr 11, 2017 1:16 pm

Asset allocation across time horizons and investment vehicles.

Post by jasonrecite25 » Fri Jan 12, 2018 1:51 pm

The more I read on the forum, the smarter I think I am getting, but hoping to get some feedback on how I am thinking about asset allocation across multiple investment vehicles, goals, and respective time horizons.

Age: 35 years old
Portfolio size: mid six figures.

Here is what I currently have set up, would love others thoughts on where my logic may be flawed:

TIME HORIZON A: 25 years away. (60 Years Old - Core Retirement Funds) (AA = 80/20)
-Employer 401k
-Roth IRA
-HSA
-Emergency Fund Cash

TIME HORIZON B: 15 years away. (50 Years Old - FIRE Funds) (AA = 60/40)
-Employer Executive Savings Plan (Nonqualified deferred compensation plan that will pay out over 10 years, i.e., age 50 to 60)
-Taxable Account

Questions:

1. Overall, does it make sense to break up Time Horizon A and Time Horizon B this way? Is the 10 years difference as impactful as I perceive it to be? My overall risk tolerance here can be summarized as: I really want to FIRE at 50 years old, I think I should have heavy principal to do so, and would rather balance that against the aggressive push for interest, hence the 60/40 AA.

2. Emergency Fund Cash represents 5% of Time Horizon A totals. Should I include this in the AA at all? I don't know how to think about cash within the AA or if to just ignore it since it is emergency fund. In 3-5 years, I suspect it will amount to 2% of Time Horizon A total portfolio.

3. Time Horizon A also includes company stock that I get through my employer. It isn't represented above. It is currently a revolving door that, right now, represents 20% of Time Horizon A's total portfolio. I call it a revolving door because I'm only holding the stock until it hits long term capital gains, then I sell it and reinvest in other vehicles, e.g., Taxable Account. Based on future forecasts of the stock grants going slightly up, but the overall balance of Time Horizon A growing exponentially faster, the 20% exposure to employer stock should continue to come down, but how should I treat it and manage it over the next few years while it makes up between 10-20% of the total portfolio? Do I bundle it as a large cap domestic growth stock in my AA? Do I treat it completely separate as a revolving door of cash that goes to other investment vehicles?

4. I also have two 529 accounts that align pretty nicely with TIME HORIZON 2 and when the kids will hit college. Currently sitting in a target date fund, managed outside of any retirement AA. Should I also bundle there?
Last edited by jasonrecite25 on Tue Jan 16, 2018 11:58 am, edited 1 time in total.

Retirement55
Posts: 4
Joined: Thu Jul 20, 2017 8:48 am

Re: Asset allocation across time horizons and investment vehicles.

Post by Retirement55 » Sat Jan 13, 2018 11:45 pm

I am also 35 and similar size portfolio. I approach my allocation % similar to you. I do not include liquid assets, and also do not include employer stock (private stock bank) or peer to peer lending account into my allocations. 529 is also on a glide path based on age. I consider those items as separate categories. For specific retirement accounts, I am 100/0 in Roth, 90/10 401k, and 80/20 taxable stock account. I plan to use liquid assets and taxable around age 55. 401k at age 65-70 onward. Hopefully never need Roth, but will be last line of defense. Allocation is slightly risky, but I've been paying my mortgage down with extra funds that would have went towards bond allocation. Once mortgage is paid in 3 years, ill ramp up bond % by 5-10% per account.

mega317
Posts: 2269
Joined: Tue Apr 19, 2016 10:55 am

Re: Asset allocation across time horizons and investment vehicles.

Post by mega317 » Sun Jan 14, 2018 12:31 am

I see what you're trying to do, but I think you are creating false precision. For example, time horizon A might start in 25 years when you're 60, but some of that money better last another 20-30 years beyond that.

If you look in the past (the future may be different) 80/20 and 60/40 are not the same but they're not that different. If year 15 is like 2000, you'd prefer to be 60/40 for the next 10 years.

What does this mean?
I think I should have heavy principal to do so, and would rather balance that against the aggressive push for interest
It doesn't matter how you handle your emergency fund. If you're 80/20 including it, then you're 84/16 if you don't. Woo.

My recommendation is to pick an overall asset allocation you can live with and then reassess every 5 years or so as the future becomes more clear.

jasonrecite25
Posts: 47
Joined: Tue Apr 11, 2017 1:16 pm

Re: Asset allocation across time horizons and investment vehicles.

Post by jasonrecite25 » Tue Jan 16, 2018 11:56 am

mega317 wrote:
Sun Jan 14, 2018 12:31 am
I see what you're trying to do, but I think you are creating false precision. For example, time horizon A might start in 25 years when you're 60, but some of that money better last another 20-30 years beyond that.

If you look in the past (the future may be different) 80/20 and 60/40 are not the same but they're not that different. If year 15 is like 2000, you'd prefer to be 60/40 for the next 10 years.

What does this mean?
I think I should have heavy principal to do so, and would rather balance that against the aggressive push for interest
It doesn't matter how you handle your emergency fund. If you're 80/20 including it, then you're 84/16 if you don't. Woo.

My recommendation is to pick an overall asset allocation you can live with and then reassess every 5 years or so as the future becomes more clear.
Thanks for the feedback on emergency fund cash, agree I'll ignore it. 80/20 and 60/40 feel different to me, but agree with your point about those not being that different. Apart from some of my more detailed questions, just trying to decide if I really should break up these two time horizons into different buckets to both think about and manage them differently.

My comment about heavy principal funding Time Horizon B could be better articulated. I basically mean that, with the shorter term time horizon, I expected to heavily fund that bucket with principal and not rely on interest to get to my goal. With that said, I tend to lean on a more conservative AA as my thinking is that I would prefer to take less risk to hit my goal and hedge against missing my goal versus trying to speed up my goal for a year or two by taking on more risk.

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