AA across different accounts

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willygreen
Posts: 33
Joined: Mon Jan 30, 2017 8:43 pm

AA across different accounts

Post by willygreen » Tue Aug 13, 2019 8:21 am

Hello,

My employer is switching to a new 401k provider. They offer VFIAX at .04%; most of the other funds are American Target Date Funds at an average of .4% and some other funds at higher expenses.

I am thinking of putting my entire 401k in VFIAX and then investing other funds elsewhere to get my desired AA. Here is what I will have:

$145K VFIAX - 401K .04%
$56K VBTLX - IRA .05%
$37.5K VBTLX - Taxable .05%

This seems reasonable to me. The bond fund options in my 401k have much higher expense ratios.

Is there any downside to having all of my 401k in one fund? Anything I am missing?

Thanks!

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Cyclesafe
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Joined: Wed Dec 31, 2014 1:03 pm

Re: AA across different accounts

Post by Cyclesafe » Tue Aug 13, 2019 8:39 am

No. What matters is whether your entire portfolio reflects your intended asset allocation.

https://www.bogleheads.org/wiki/Asset_a ... e_accounts

However, your placement of VBTLX (duration 6.0) in taxable would be of (slight) concern for higher earning investors. Consider VWLUX (duration 6.3) or your state-specific tax exempt intermediate or "long term" muni instead.

Example for Cali at 24%+3.8%, federal, plus 9.3%, state, the current after tax yields are as follows:

VBTLX 1.535%
VWIUX 1.469%
VCADX 1.470%
VWLUX 1.859%
VCLAX 1.860%
Last edited by Cyclesafe on Tue Aug 13, 2019 8:50 am, edited 1 time in total.
"Plans are useless; planning is indispensable.” - Dwight Eisenhower

neilpilot
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Re: AA across different accounts

Post by neilpilot » Tue Aug 13, 2019 8:45 am

Your plan seems fine, except you might consider pegging your 401k assets (as well as any other tax deferred account) at x% of market value, where x is the approximate retirement after tax percentage of the account's value. Otherwise, the value of the 401k will be over-weighted in your total asset allocation scheme.

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Cyclesafe
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Re: AA across different accounts

Post by Cyclesafe » Tue Aug 13, 2019 9:02 am

neilpilot wrote:
Tue Aug 13, 2019 8:45 am
Your plan seems fine, except you might consider pegging your 401k assets (as well as any other tax deferred account) at x% of market value, where x is the approximate retirement after tax percentage of the account's value. Otherwise, the value of the 401k will be over-weighted in your total asset allocation scheme.
I've also started thinking about after-tax tax deferred account valuations. After the switch, my "asset allocation" number changed, but not my willingness or ability to bear risk so, as a practical matter, it didn't matter. In my case, my asset allocation went from 50/50 to 55/45 and I am happy with both.

But I fervently agree that thinking after-tax is the better way to think about things. It reminds one that the after-tax balance in tax deferred behaves exactly the same as the balance in a Roth, which, for me, was an epiphany. Now, only if I could predict future tax rates.....
"Plans are useless; planning is indispensable.” - Dwight Eisenhower

livesoft
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Re: AA across different accounts

Post by livesoft » Tue Aug 13, 2019 10:08 am

Personally, I would not use VBTLX in taxable because the tax drag could outweigh a higher expense ratio in your 401(k). You might want to do the math.
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rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: AA across different accounts

Post by rkhusky » Tue Aug 13, 2019 10:55 am

If the bond funds have much higher rates than the target date funds, check out the target date fund with the most bonds to see if it would work as a bond replacement (plus giving you some international stock and small caps).

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