Asset Allocation - Overall or by Account?

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Burgh Investor
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Asset Allocation - Overall or by Account?

Post by Burgh Investor »

This is likely a very dumb question, but I am sure I am not the only wondering so I will ask it for everyone's benefit.

I want to do an 80/20 asset allocation to mirror the Three Fund Portfolio (but only two of the funds due to only being 26 with a high risk tolerance and opting to forgo bonds at this time).

That would be 80% to the total US Stock Market Index Fund and 20% to the Total International Stock Market Index Fund.

Between my wife and I, we have the following accounts with Vanguard:
- 2 Roth IRAs
- Traditional IRA
- Taxable Brokerage Account
- 403(b) & 457(b)

For easy math, let's assume we have $100,000 total saved in our retirement accounts. In order to follow the 80/20 asset allocation mentioned above, would it be 80/20 split in every single account, or just an overall split of 80/20. In other words, could both Roth IRAs have 100% VTSAX while the the VTIAX is a small portion of another account to make the 20%?

Apologies if this is confusing - I'm having a hard time putting my thoughts into words here.

Thanks in advance!
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Re: Asset Allocation - Overall or by Account?

Post by abuss368 »

Either is fine and you should select what works best.

Rick Ferri has recommended “equal location” that is essentially the same funds in each account. Bonds may be different based on individual tax situation.

Asset location is often recommended as well. But tax laws change. Interest rates change.

I think this is all secondary to the overall BIG picture. That is saving and investing, build cash, buy low cost index funds, pay down / off debt, hold enough insurance / invest in your career and health, spend less than you make.

The rest?

Dancing on the head of a pin!

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Re: Asset Allocation - Overall or by Account?

Post by SantaClaraSurfer »

This article in the Wiki will answer your questions. It's well presented.

Vast majority of longtime posters I've seen here advocate for the whole portfolio allocation with greater tax efficiency.

My wife and I are 10 years different in age and we keep our 401(k)s in Target Date Funds that have different dates. I've read the wiki, and the threads, but this less favored approach still makes the most sense to us.
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Re: Asset Allocation - Overall or by Account?

Post by livesoft »

All math is easy, so I do AA by overall portfolio. That makes it simple for me because some accounts such as my spouse's 401(k) will have only 1 single fund in them such as a Total Bond Index fund or my spouse's Roth IRA that has only Total US Stock Market Index or our Vanguard taxable account which has only US Large Cap Index. I don't have to ever think or make manual transactions in those accounts: They are set-and-forget and on autopilot. The overall values of these accounts are known and used in any AA calculation.

I have one account used to rebalance the entire portfolio. It is so simple that I don't even need a spreadsheet to figure anything out.

BTW, AA calculation is done for you (and me) by your brokerage (and mine). See this thread: viewtopic.php?t=150267
Last edited by livesoft on Sat Jan 16, 2021 4:41 pm, edited 2 times in total.
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Re: Asset Allocation - Overall or by Account?

Post by livesoft »

abuss368 wrote: Sat Jan 16, 2021 4:33 pm Rick Ferri has recommended “equal location” that is essentially the same funds in each account.
I think this was because he was tired of trying to convince clients to do otherwise and not for any other reason.
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Re: Asset Allocation - Overall or by Account?

Post by grabiner »

It is not necessary to mirror asset allocations across accounts. You get the same benefit of diversification regardless of what is in which account. If US stocks are up and foreign stocks are down, you still have just as much money for retirement, with gains in the account holding the US stock balancing out losses in the account holding the foreign stock.

It may be easier to mirror allocations, but check your tax situation. You may have a tax advantage for holding US or foreign stocks in taxable. It is close to break-even on average; foreign stocks have higher dividend yields and more non-qualified dividends, but the foreign tax credit offsets the extra tax. But if your state allows a foreign tax credit, then foreign stock dividends are usually exempt from state tax, so you should prefer them. If you are in a high-tax state with no foreign tax credit, then the higher dividend yield on foreign stock makes US stock in taxable more attractive.

When you do start adding bonds, there is likely to be a stronger tax reason to hold bonds in one account rather than another. Again, it will depend on your tax situation, as well as on bond yields. If you are in a high-tax state and Vanguard has a fund for your state, you will probably prefer to hold in-state munis in a taxable account. If you are in a high-tax state and bond yields are higher than stock yields, you will prefer to hold bonds in a tax-deferred account.

I have a large taxable account, a high state tax (8.2%), and some tax-inefficient funds (REITs, in particular), so I save a significant amount in taxes by putting only the most tax-efficient funds in my taxable account.
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Re: Asset Allocation - Overall or by Account?

Post by abuss368 »

livesoft wrote: Sat Jan 16, 2021 4:38 pm
abuss368 wrote: Sat Jan 16, 2021 4:33 pm Rick Ferri has recommended “equal location” that is essentially the same funds in each account.
I think this was because he was tired of trying to convince clients to do otherwise and not for any other reason.
I’m not sure. Rick once said it was certainly easier to manage a portfolio.

I don’t think it makes a big difference.

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Re: Asset Allocation - Overall or by Account?

Post by Burgh Investor »

livesoft wrote: Sat Jan 16, 2021 4:37 pm All math is easy, so I do AA by overall portfolio. That makes it simple for me because some accounts such as my spouse's 401(k) will have only 1 single fund in them such as a Total Bond Index fund or my spouse's Roth IRA that has only Total US Stock Market Index or our Vanguard taxable account which has only US Large Cap Index. I don't have to ever think or make manual transactions in those accounts: They are set-and-forget and on autopilot. The overall values of these accounts are known and used in any AA calculation.

I have one account used to rebalance the entire portfolio. It is so simple that I don't even need a spreadsheet to figure anything out.

BTW, AA calculation is done for you (and me) by your brokerage (and mine). See this thread: viewtopic.php?t=150267
Thanks for the feedback! My goal is to do the same and make our retirement accounts run themselves and super simple. We just parted ways with our financial advisor, and he has ~$23k of ours invested in individual stocks in our taxable account so that is kind of throwing me off for overall asset allocation because that's 23% of our total accounts right now. So to split the rest 80/20, ill really only be at 63%/15% in addition to the 22% in individual stocks. My plan is to bring that % invested in individual stocks down by investing all money into VTSAX and VTIAX until individual stocks are down to <10% of my overall portfolio instead of selling them (they are good stocks at least: Apple, Microsoft, Draft Kings).
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Re: Asset Allocation - Overall or by Account?

Post by livesoft »

Our family has his & her HSAs, his & her Roth IRAs, his & her 401(k), a joint taxable account, his & her inherited IRAs, her traditional IRA, and some other accounts.

Back in March 2020, I only had to exchange from a bond fund to a stock fund in my 401(k) to rebalance the entire portfolio. That's one sell and one buy.

If we had the same AA in all those 10 accounts, that would have been 20 transactions (or 10 exchanges).

I don't think one can argue that doing 20 transactions is easier than doing 2 transactions.
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Re: Asset Allocation - Overall or by Account?

Post by Horton »

livesoft wrote: Sat Jan 16, 2021 5:05 pm Our family has his & her HSAs, his & her Roth IRAs, his & her 401(k), a joint taxable account, his & her inherited IRAs, her traditional IRA, and some other accounts.

Back in March 2020, I only had to exchange from a bond fund to a stock fund in my 401(k) to rebalance the entire portfolio. That's one sell and one buy.

If we had the same AA in all those 10 accounts, that would have been 20 transactions (or 10 exchanges).

I don't think one can argue that doing 20 transactions is easier than doing 2 transactions.
Unless each account is invested in a TDF or LifeStrategy fund where someone else automatically rebalances on your behalf. ZERO transactions.
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Re: Asset Allocation - Overall or by Account?

Post by livesoft »

Horton wrote: Sat Jan 16, 2021 5:09 pmUnless each account is invested in a TDF or LifeStrategy fund where someone else automatically rebalances on your behalf. ZERO transactions.
I must confess that 4 of our smaller tax-advantaged accounts have a single TDF or LifeStrategy fund in them. :twisted:
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Re: Asset Allocation - Overall or by Account?

Post by goodenyou »

I do it overall because some accounts have lousy choices that do not allow me to put the asset of choice in that account. So, I pick asset location based on tax efficiency AND cost and choice of funds. Therefore, it is done on an overall basis.
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Re: Asset Allocation - Overall or by Account?

Post by Vanguard Fan 1367 »

I like an overall approach to asset allocation. I do my best to put bond funds in traditional IRA accounts and stock funds in Roth and taxable accounts.
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Re: Asset Allocation - Overall or by Account?

Post by 3feetpete »

I am have been living off of my portfolio for the last 3 1/2 years and will be for another year. I have different AA's for different classes of accounts.
My regular IRA that I am living off of I have an aa of 60% stocks the rest in bonds and cash.
My roth IRA I consider to be a very long term investments that I will probably never touch. I have 100% in stocks
I have very little in my taxable account but it is 100% in index etf's to minimize taxes.
My overall aa is about 75% stocks but my intent is to move it towards 80% stocks as I approach recieving full SS at 70. At that point my retirement income will be about 70% of my needs and dividends will cover the rest.

The other day I sold stock when it was at a high in order to increase my cash position to 2years expenses. I never did that during the accumulation phase but now that I am living off my portfolio I want to avoid ever having to sell after a market crash and right now I think the market has the potential to go down a lot more than a potential to go up. I'm hardly market timing. This still leaves me at almost 75% in stocks.
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Re: Asset Allocation - Overall or by Account?

Post by drumboy256 »

Burgh Investor wrote: Sat Jan 16, 2021 4:29 pm This is likely a very dumb question, but I am sure I am not the only wondering so I will ask it for everyone's benefit.

I want to do an 80/20 asset allocation to mirror the Three Fund Portfolio (but only two of the funds due to only being 26 with a high risk tolerance and opting to forgo bonds at this time).

That would be 80% to the total US Stock Market Index Fund and 20% to the Total International Stock Market Index Fund.

Between my wife and I, we have the following accounts with Vanguard:
- 2 Roth IRAs
- Traditional IRA
- Taxable Brokerage Account
- 403(b) & 457(b)

For easy math, let's assume we have $100,000 total saved in our retirement accounts. In order to follow the 80/20 asset allocation mentioned above, would it be 80/20 split in every single account, or just an overall split of 80/20. In other words, could both Roth IRAs have 100% VTSAX while the the VTIAX is a small portion of another account to make the 20%?

Apologies if this is confusing - I'm having a hard time putting my thoughts into words here.

Thanks in advance!
Great question! I literally just stumbled through this very thing the last 12 months of my life. The amount of shifting to get the right AA per account, per fund type, per risk tolerance.... *PHEW!*. Needless to say, it can be a daunting task of which I get why the Wiki (and most Bogleheads) don't give a definitive answer because each situation is unique.

My school of thought (based on your criteria) is the assembling the following:
- 403b : VTSAX
- 457b : VITAX
- tIRA: BND / BNDX
- His Roth IRA: VT / VTI
- Hers Roth IRA: VT / VTI
- Taxable Brokerage : VTI

Now, I'll mirror my allocation and explain my reasons:
- BrokerageLink 401k - FSTAX 30%
- BrokerageLink Roth - FTIHX 25%
- BrokerageLink 401k (Company) - Mixed 60/40 fund 8%
- Her tIRA - VT 30%
- His tIRA - VT / BND / BNDX 7%
- Taxable Brokerage: ITOT < 1%

That said, this is about as simple as I can get my portfolio down to without using a target date fund that adds bonds that I currently don't want mixed in. My overall split now based on levels is around 60% Total US / 35% Total ex-US / 5% Bonds. In my opinion, trying to mirror a 60/35/5 AA across EACH account is like death by 1,000 cuts. My IPS that I wrote states I won't start moving towards greater than 20% bonds until I reach 45 because I have a high risk tolerance for my equities. I've also been doing a lot of reading about building a "Bond tent" prior to retirement of which I will write into my IPS that I review with my wife once a year.

Anyways, point being, you should allocate your portfolio across the accounts to maintain the color of your hair and ease of investing. Good luck!
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Re: Asset Allocation - Overall or by Account?

Post by placeholder »

I do it overall so that I can have my 40% allocation to fixed income in my tax deferred 401k and most of stock as etfs in roth or taxable all of which is easily managed with a spreadsheet.
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Re: Asset Allocation - Overall or by Account?

Post by Moondawg »

I’ve been managing this as an equal weight in all tax deferred and Roth accounts. Its super simple and has made future (expected) contributions easier to manage.

As our taxable and HSA accounts grow, this will probably need to be re-evaluated. A shame as current set up is clean and simple.
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Re: Asset Allocation - Overall or by Account?

Post by HMSVictory »

I learned this one the hard way by having my allocation setup in each account. Go for simplicity! It's easier to scale.

As my accounts and wealth grew it got to be a real pain in the rear end. I have 2 roths IRA's, 2 taxable IRAs, 2 brokerage accounts, 2 529s, 1 457 plan, 1 401k and 1 deferreed comp. That's 11 separate accounts! So now I have minimal funds in each account and go for maximum tax efficacy.

Side note I would hold VASGX in your Roth accounts and the international fund in your brokerage accounts (sadly I get to do a lot of tax loss harvesting on the international funds). You will be fine with 2 funds total as you will own the entire investing equity space. Pray for volatility as it is your friend as your are building your nest egg.
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Re: Asset Allocation - Overall or by Account?

Post by Grt2bOutdoors »

livesoft wrote: Sat Jan 16, 2021 4:38 pm
abuss368 wrote: Sat Jan 16, 2021 4:33 pm Rick Ferri has recommended “equal location” that is essentially the same funds in each account.
I think this was because he was tired of trying to convince clients to do otherwise and not for any other reason.
I think its because of behavioral errors clients would be making. Imagine, holding Total Stock Market index only in one account, the market tanks and declines 35 percent, the client looks at the account statement and has a proverbial heart attack - OMG! the account dropped 35%, how can that be when my asset allocation is 30/70? The client fails to look at the totality of the entire portfolio, instead fixates on just that one account. So to your point, "tired" is a good description, as I believe one would be after fielding dozens of upset calls from clients, I know I would be.
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Re: Asset Allocation - Overall or by Account?

Post by Sahara »

Burgh Investor wrote: Sat Jan 16, 2021 4:29 pm This is likely a very dumb question, but I am sure I am not the only wondering so I will ask it for everyone's benefit.

I want to do an 80/20 asset allocation to mirror the Three Fund Portfolio (but only two of the funds due to only being 26 with a high risk tolerance and opting to forgo bonds at this time).

That would be 80% to the total US Stock Market Index Fund and 20% to the Total International Stock Market Index Fund.

Between my wife and I, we have the following accounts with Vanguard:
- 2 Roth IRAs
- Traditional IRA
- Taxable Brokerage Account
- 403(b) & 457(b)

For easy math, let's assume we have $100,000 total saved in our retirement accounts. In order to follow the 80/20 asset allocation mentioned above, would it be 80/20 split in every single account, or just an overall split of 80/20. In other words, could both Roth IRAs have 100% VTSAX while the the VTIAX is a small portion of another account to make the 20%?

Apologies if this is confusing - I'm having a hard time putting my thoughts into words here.

Thanks in advance!
As you can see -- this is a very common issue! Most can do the simple calculations, but I typically use a spreadsheet because the asset location - shuffling between account balances and contributions - gets challenging and is different for each investor.

I've input your basic scenario into the spreadsheet I use in case you might find it useful. You can duplicate the values sheet to allocate contributions.

https://docs.google.com/spreadsheets/d/ ... sp=sharing
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