Asset Allocation for Taxable Investment Account

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BLeavesFarms
Posts: 1
Joined: Mon Apr 01, 2024 12:38 am

Asset Allocation for Taxable Investment Account

Post by BLeavesFarms »

I am looking for advice on what to invest in in my taxable account.

First, as for my tax efficient accounts, I have a 457B. I contribute the minimum amount every paycheck to receive my employer match. I also have a 457B Roth. Most of my money is going there, and I contribute the maximum amount allowed each year. Both my 457B and 457B Roth are invested 100% into the T.Rowe Price 2060 Target Date Fund.

I then have a Roth IRA with Schwab. I invest the maximum amount allowed each year, and have it split between the Schwab 2060 Target Date Index Fund and the Schwab S & P 500 Index. All newly added funds I've been investing in the Schwab 2060 Target Date Index Fund.

I have an emergency fund in a Schwab Money Market.

I also have a taxable investment account with Schwab, where I'd like to start investing more. Currently, my taxable account is entirely invested in the Schwab S & P 500 Index Fund.

The Target Date Funds give me some International and Bond Exposure. My question is: If I additionally want to continue dollar cost average investing in my Schwab taxable investment account each month, do you have any recommendations for asset allocation? Is sticking with a Schwab S & P 500 Index Fund and just continuing to add to that each month a worthwhile strategy, or would it be better to diversify a bit more in this taxable account? If so, what would you suggest?

I anticipate a pension in addition to investments and have several decades ahead of me and have good emotional control in down markets. I'm slow and steady and am willing to sacrifice in the short term for a better tomorrow. I'm generally not a risky person, but would like decent returns. I hope this all makes sense.

Thank you so much for your help with my total noob question!
steadyosmosis
Posts: 1090
Joined: Mon Dec 26, 2022 11:45 am

Re: Asset Allocation for Taxable Investment Account

Post by steadyosmosis »

BLeavesFarms wrote: Mon Apr 01, 2024 1:20 am I am looking for advice on what to invest in in my taxable account.

First, as for my tax efficient accounts, I have a 457B. I contribute the minimum amount every paycheck to receive my employer match. I also have a 457B Roth. Most of my money is going there, and I contribute the maximum amount allowed each year. Both my 457B and 457B Roth are invested 100% into the T.Rowe Price 2060 Target Date Fund.

I then have a Roth IRA with Schwab. I invest the maximum amount allowed each year, and have it split between the Schwab 2060 Target Date Index Fund and the Schwab S & P 500 Index. All newly added funds I've been investing in the Schwab 2060 Target Date Index Fund.

I have an emergency fund in a Schwab Money Market.

I also have a taxable investment account with Schwab, where I'd like to start investing more. Currently, my taxable account is entirely invested in the Schwab S & P 500 Index Fund.

The Target Date Funds give me some International and Bond Exposure. My question is: If I additionally want to continue dollar cost average investing in my Schwab taxable investment account each month, do you have any recommendations for asset allocation? Is sticking with a Schwab S & P 500 Index Fund and just continuing to add to that each month a worthwhile strategy, or would it be better to diversify a bit more in this taxable account? If so, what would you suggest?

I anticipate a pension in addition to investments and have several decades ahead of me and have good emotional control in down markets. I'm slow and steady and am willing to sacrifice in the short term for a better tomorrow. I'm generally not a risky person, but would like decent returns. I hope this all makes sense.

Thank you so much for your help with my total noob question!
My simple, self-managed, low-cost, tax-efficient, basically-3-fund portfolio is held mainly at Schwab.
Maximum expense ratio for any single fund/ETF in the portfolio is 0.07% (SGOV).

Taxable brokerage account (Schwab): 100% VTI (Vanguard Total Stock Market ETF).
Roth IRA (Schwab): 64% SCHB (Schwab US Broad Market ETF) and 36% SCHF (Schwab International Index ETF).
Traditional (rollover) IRA (Schwab): 58% 30yr TIPS ladder, 21% BND (Vanguard Total Bond Market ETF), 21% SGOV (iShares 0-3 Month Treasury Bond ETF).
HSA (Optum Bank): 100% VITSX (Vanguard Total Stock Market Index Fund).
Checking account (large national bank): few hundred dollars to pay monthly bills.
Summary below.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable account and rebalance in tIRA.
HomeStretch
Posts: 11621
Joined: Thu Dec 27, 2018 2:06 pm

Re: Asset Allocation for Taxable Investment Account

Post by HomeStretch »

Welcome to the forum!

Asset allocation (AA) is a personal decision. This BH wiki page may be helpful in determining your AA:
https://www.bogleheads.org/wiki/Asset_allocation

You did not provide fund symbols for your current holdings. The TRP and Schwab 2060 target date funds (TDF) generally have an equity allocation of 95% equity so, when coupled with your S&P 500 holdings, your overall AA is likely > 95% equity. Is this in line with your risk tolerance?

If you would like additional feedback on your portfolio, consider posting in the “Asking Portfolio Questikns” format found here:
https://www.bogleheads.org/wiki/Asking_ ... _questions

What is the fund symbol and expense ratio for the 457 TRP TDF? Is it a low or high ER choice compared to other funds offered by the Plan (such as the lowest cost U.S. and international equity funds)?
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Re: Asset Allocation for Taxable Investment Account

Post by livesoft »

BLeavesFarms wrote: Mon Apr 01, 2024 1:20 am I am looking for advice on what to invest in in my taxable account.
[...]
I also have a taxable investment account with Schwab, where I'd like to start investing more. Currently, my taxable account is entirely invested in the Schwab S & P 500 Index Fund.
Nothing wrong with just that one single fund in your taxable account as long as your portfolio when you include all your other accounts has your desired overall asset allocation. Perhaps you will do some tax-loss harvesting (TLH) eventually and have a Total US Stock Market Index fund as TLH partner.

Use the Cost Basis Method of Specific Identification with your taxable account funds and NOT average cost.
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KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Asset Allocation for Taxable Investment Account

Post by KlangFool »

OP,

A) You made a mistake. You should not contribute to Roth 457B. Contribute to Trad 457B and put the tax savings into the taxable account.

B) You should be 100% stock index fund in your taxable account.

C) Change your investment in your tax advantaged account to be more conservative. For example, target date retirement fund 2040 to get to your desired asset allocation.

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grabiner
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Re: Asset Allocation for Taxable Investment Account

Post by grabiner »

KlangFool wrote: Mon Apr 01, 2024 7:11 am A) You made a mistake. You should not contribute to Roth 457B. Contribute to Trad 457B and put the tax savings into the taxable account.
I don't know their full tax situation, but I believe the OP might fall into one of the exceptions to this general principle.

The key is that they will have a pension, and can max out a Roth 457B. The pension means that they might retire in the same tax bracket.

And while traditional versus Roth is normally break-even if you retire at the same marginal tax rate, Roth is better if you can max it out. If you will retire in the 22% tax bracket, $7800 in Roth is no better than $10,000 in traditional, Likewise, $23,000 in Roth is no better than $29,487 in traditional, but you aren't allowed to contribute $29,487 to a traditional account; you would instead have $23,000 in the traditional account and $5060 in a taxable account, which is not as good.
KlangFool wrote: Mon Apr 01, 2024 7:11 am B) You should be 100% stock index fund in your taxable account.

C) Change your investment in your tax advantaged account to be more conservative. For example, target date retirement fund 2040 to get to your desired asset allocation.


I agree with both of these. It might be worth using separate funds rather than a target-date fund in the retirement account, since the need to rebalance as the account sizes change eliminates the simplicity advantage of the target-date fund. That is, if you want 10% of your portfolio to be in bonds, then you can rebalance every year so that 10% of your total portfolio is in bonds, with those bonds in your 457(b) assuming it has a good bond fund.
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Navillus1968
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Location: FL Tampa Bay

Re: Asset Allocation for Taxable Investment Account

Post by Navillus1968 »

OP, what is your current income tax bracket/rate, Fed & state combined?
Do you anticipate that your pension + SS will keep you in the same rate in retirement? Any plans to move in retirement to a low/no tax state?
How old are you, early 40s?

Your asset allocation seems to be at least 90/10, which if fine when your time horizon is 20+ years, but as you proceed closer to retirement, you will want to adjust your AA towards more fixed income to protect against market volatlity/sequence of returns risk.

It might help to know how your portfolio is split between Trad 457b, Roth 457b & Roth IRA, & taxable in perms of percentages of the portfolio.

You might eke out a slightly larger return if you re-balanced all your Roth accounts to 100% equities & placed your entire bond/fixed income AA in Trad 457b. Maximizing tax-free growth inside a Roth with 100% stocks is a pretty good rule of thumb. If your bond AA outgrows your Trad 457b, then putting some bonds in Roth becomes unavoidable, but until then, 100% equities in Roth.
Taxable should remain 100% stocks, as you have it.
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