Multiple accounts allocation?

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boggledbybogle8
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Joined: Tue Feb 27, 2018 1:40 pm

Multiple accounts allocation?

Post by boggledbybogle8 » Tue Feb 27, 2018 8:25 pm

Hi all. Hope you can help me!

I started off investing kind of "wrong". Friends/family told me to get on S&P 500 so I started a Schwab Traditional Roth account. With my extra savings, also have an individual Schwab account. Then I read up on 3-fund portfolios and added those to the mix. At the moment I have in both the IRA and Individual:

Schwab International Index Fund 0.06% expense
Schwab Total Stock Market 0.03% expense
Schwab US Aggregate Bond Index 0.04% expense
Schwab S&P 500 Index Fund 0.03% expense

Now that I have read up even more (Boglehead wiki and IfYouCan are so interesting!) I realized that I shouldn't have the S&P 500 since the Total Stock encompasses it (am I right?). I want to rebalance what everything looks like but I have a few questions. This is my overview:

Emergency fund: Yes
Debt: 0.0% APR car loan
Tax filing: Single
Tax Rate: 24% fed
State: HI
Age: 31
Asset allocation: No idea!

Accounts:
- 401K (employer 3% match 100%, additional 50% up to 5% - maxed out) and the only options available are TIAA ones. I selected:
TIAA-CREF 2050 0.10% expense. - (mid 5 figures)

- Schwab Traditional Roth which has the above 4 funds. (low 5 figures)
- Individual account with the above 4 funds (low 5 figures)

Questions:

So, I was wondering if you thought I should change both those accounts to have 33/33/33 and eliminate the S&P 500 (or some other ratio?). Or, should one account have the 3-fund portfolio, and one fund have a Target fund? I already have a target fund via 401k. Or any other combination for my 3 accounts? I'm open to any suggestions.

Second question, if I sold the S&P 500 in my individual account would this count as capital gains? How do I get rid of the S&P 500 without incurring gains? A way to swap to a different fund?

Thanks so much for helping out a newbie :)

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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Multiple accounts allocation?

Post by Watty » Tue Feb 27, 2018 11:27 pm

boggledbybogle8 wrote:
Tue Feb 27, 2018 8:25 pm
Second question, if I sold the S&P 500 in my individual account would this count as capital gains? How do I get rid of the S&P 500 without incurring gains? A way to swap to a different fund?
Yes it would generate capital gains and if you have held it for less than a year then it would be short term capital gains which would be taxes at a higher tax rate.

If you have significant capital gains I would just the keep the funds in the S&P 500 fund and put any new money into a total stock market fund.

The S&P 500 is a large cap fund and the total stock market fund is market weighted so about 75%(? you can look it up) of it is the same as the S&P 500.

The other 25%(?) is mid and small cap stocks which might perform slightly differently but it they generally move in somewhat the same direction of large cap stocks so the overall performance is not different enough to worry about.

boggledbybogle8
Posts: 4
Joined: Tue Feb 27, 2018 1:40 pm

Re: Multiple accounts allocation?

Post by boggledbybogle8 » Wed Feb 28, 2018 1:39 pm

Thank you for your reply. I'll just keep the funds. How would you recommend what I do for the Traditional IRA? Sell it and balance to 33/33/33? Or do I have too many accounts with those funds in it and I need to diversify?

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patrick013
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Re: Multiple accounts allocation?

Post by patrick013 » Wed Feb 28, 2018 2:00 pm

Tax-efficient Fund Placement

Your bond fund should go into a traditional tax-deferred
account for sure.
age in bonds, buy-and-hold, 10 year business cycle

Jack FFR1846
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Re: Multiple accounts allocation?

Post by Jack FFR1846 » Wed Feb 28, 2018 2:21 pm

You don't have a lot of accounts. Between my wife and I, we have 10 accounts. Probably more at this point. The key is to keep track of everything in a way that makes it easy to balance and know what you have. I do it with an excel spread sheet. You also don't need 3 funds in each account. I have exactly 1 fund in each of our accounts except my IRA, where I rebalance. Once you see what your asset allocation is from a simple excel spread sheet, you can decide how to get the allocation you want. This can be by simply buying the desired funds to close the gap.
Bogle: Smart Beta is stupid

boggledbybogle8
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Joined: Tue Feb 27, 2018 1:40 pm

Re: Multiple accounts allocation?

Post by boggledbybogle8 » Wed Feb 28, 2018 4:33 pm

patrick013 wrote:
Wed Feb 28, 2018 2:00 pm
Tax-efficient Fund Placement

Your bond fund should go into a traditional tax-deferred
account for sure.
Oh, wow. That link for tax efficient placement is very useful. Thank you.
Jack FFR1846 wrote:
Wed Feb 28, 2018 2:21 pm
You don't have a lot of accounts. Between my wife and I, we have 10 accounts. Probably more at this point. The key is to keep track of everything in a way that makes it easy to balance and know what you have. I do it with an excel spread sheet. You also don't need 3 funds in each account. I have exactly 1 fund in each of our accounts except my IRA, where I rebalance. Once you see what your asset allocation is from a simple excel spread sheet, you can decide how to get the allocation you want. This can be by simply buying the desired funds to close the gap.
Thanks for the advice. I honestly never thought about splitting up the 3 funds - I guess I always thought it was just part of one account and that account was the portfolio. I was totally wrong! Thanks!

Now - if I want to get rid of these other funds in the IRA and just keep bonds- do I have to pay taxes on anything like the individual account?

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Meg77
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Re: Multiple accounts allocation?

Post by Meg77 » Wed Feb 28, 2018 4:57 pm

You're doing great! The S&P500 is a fine index, and it almost exactly correlates to the return on the Total Stock market Index anyway. The only difference is that the Total Stock Market index has ALL US stocks, including small and mid caps. The S&P 500 is just 500 large cap stocks (so yes, the total market encompasses the 500 index). But those 500 stocks drive the market anyway, so both indices are very similar with regard to return andn risk. There's no need to sell the S&P 500 and recognize a gain just to move to the total market.

Also, each individual account doesn't need to be balanced according to your target asset allocation - it's the overall picture that matters. In other words you don't need all 3 funds in every account. Many people hold the S&P 500 index or total stock market index in their 401k (since it's usually offered as an option, whereas a bond index and international index aren't always). Then they use IRA space for small/mid caps, international and bonds. But your 401k fund is pretty cheap for a target retirement fund so I might be inclined to just keep that for now. Many index funds in 401ks cost more than 10 basis points.

Bottom line is that I think you may be overanalyzing this. The single most important factor is savings rate at this point. Until you have hundreds of thousands of dollars, even 7 figures, asset allocation and expense ratios really just don't make that much of a difference. Even your return doesn't matter that much for many years, which people tend to overlook.

For example, 1% is a HUGE expense ratio. But 1% of $100,000 is still "only" $1,000 a year. Saving more each a month is going to be way more meaningful to the growth of your portfolio than slashing your expense ratio. Similarly, getting a 10% return versus an 8% return (the difference with a more aggressive asset allocation) is awesome! And over decades that adds up to a lot. But that 2% difference is only $200 on a $10,000 portfolio. Even at 10 times that - a $100,000 portfolio - the difference is only $2000. Your savings rate - i.e. whether to invest more instead of get a daily latte or pay for the extended warranty on that car or take that extra vacation or buy that designer purse is just as big a deal. But people don't spend time on message boards agonizing over those decisions. :beer

Edited to add: Trades within an IRA never have capital gains, but don't put your IRA in all bonds just because it's more tax efficient to have bonds in an IRA, unless you actually want to hold that much in bonds overall. That's letting the tail wag the dog (letting taxes drive your investment decisions). Your target retirement fund already has some bonds I'm sure, so I'd keep most if not all of your IRA all in stocks.
"An investment in knowledge pays the best interest." - Benjamin Franklin

boggledbybogle8
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Joined: Tue Feb 27, 2018 1:40 pm

Re: Multiple accounts allocation?

Post by boggledbybogle8 » Wed Feb 28, 2018 5:40 pm

Meg, thanks so much for your thoughtful reply! I guess I really don't have to change anything seriously! :D

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