More strategic asset allocation across taxable/non-taxable account going forward

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Thu Apr 12, 2018 7:56 am

I have been working hard to max out my ROTH 401k and IRAs each year. This has been new to me since I wasn't making much in college/grad school, and I have only recently started to really rack up my savings.

The issue is that while I feel somewhat confident about what to buy in my taxable accounts, I don't know how to be strategic in my post-tax accounts. Should I be following the same general assets allocations across all accounts, or should I be trying to find less tax efficient assets to buy in my post-tax accounts since they can grow tax free?

My Roth 401K doesn't have a ton of options as it is held in the same place as my employer-funded 401K. (maybe 20-30 fund options of various types)

My Roth IRAs however are held at a bunch of different places (I had no plan) and contain a wide mix of things. Amazon stock, Vanguard funds, Robo investments (mix of vanguard and other low cost ETFs).

Long story short. I have been doing a good job at saving, but a terrible job at strategizing. My investments have done well, but only because a rising tide lifts all ships.

Any and all advice is welcome.
Basic Stats: 29, married, household income of ~150k, own a home with low mortgage rate.
Please advise if If more information is required.

PFInterest
Posts: 2102
Joined: Sun Jan 08, 2017 12:25 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by PFInterest » Thu Apr 12, 2018 12:43 pm

why are you using r401k?

no you dont need to replicate your AA in all accounts.

i suggest you buy total stock in taxable, and then increase your FI in your 401k to even everything back out. simple.

as you get more experienced then you can add more.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Thu Apr 12, 2018 1:03 pm

I am doing r401K because my employer already does 10% contribution to my tax-deferred 401k. Since I am of two minds re: roth vs. non-roth. I have been trying fund both types. Also, I believe my tax rate will be higher in the future, so I am trying to pay taxes now. This believe is based on my opinion that tax rates overall will be higher in the future, as well as the fact that I expect my household income to increase as I progress in my career. I also really like the idea of being able to take roth distributions in retirement while paying low or no capital gains on my taxable accounts.

Please correct or inform me on anything of my misunderstandings. I am first to admit that I am just learning and have a ways to go.

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Thu Apr 12, 2018 5:02 pm

Dak52, welcome to the forum.
Dak52 wrote:Any and all advice is welcome.
What are the options in the 401k? List the fund names, ticker symbols, and plan expense ratios.

You should consolidate your Roth IRAs at one custodian. Vanguard, Fidelity, and Schwab are the most recommended on this board.

Does your spouse work? Have any retirement accounts?

Consider using the following template: Asking Portfolio Questions.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Thu Apr 12, 2018 7:58 pm

Thank you for your response, I will do my best to provide the information I omitted earlier. Please let me know if I missed anything.

Emergency funds: 6 months normal expenses, 10-12 months if we cut back (as we would if unemployed)
Debt: 270k Mortgage 2.5% Home Value ~400k, 12k 0% car loan ($320/ month)
Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 4.75% State
State of Residence: MD
Age: 29
Desired Asset allocation: 90/10 (probably 95/5 but working on it)
Desired International allocation: 70/30 (missing the mark on this too, but working on it)

I have a 401K funded by my employer (10% of salary every year)
I have a roth 401K that I am planning to max out
My wife and I both have roth IRAs planning to max out
My wife has a tax-deferred 401k for her work, the match up to 4% so she contributes 4%

No Children. No other debt. No impending expenses. Going hard on accumulation.

So there were more 401K options than I remembered, sorry for the wall of text. I think my allocation has to be the same in my roth vs non roth employer 401k.

401K Options: (NAME SYMBOL ER)
Invesco Stable Asset Fund - ADPZ Class 0.45%
JPMorgan Core Bond Fund - Class R6 JCBUX 0.35%
PIMCO Total Return Fund - Institutional Class PTTRX 0.46%
Ivy High Income Fund - Class N IHIFX 0.56%
PIMCO Real Return Fund - Institutional Class PRRIX 0.45%

T Rowe Price Retirement I 2010 Fund - Class I TRPAX 0.42%
T Rowe Price Retirement I 2015 Fund - Class I TRFGX 0.45%
T Rowe Price Retirement I 2020 Fund - Class I TRBRX 0.49%
T Rowe Price Retirement I 2025 Fund - Class I TRPHX 0.52%
T Rowe Price Retirement I 2030 Fund - Class I TRPCX 0.55%
T Rowe Price Retirement I 2035 Fund - Class I TRPJX 0.58%
T Rowe Price Retirement I 2040 Fund - Class I TRPDX 0.59%
T Rowe Price Retirement I 2045 Fund - Class I TRPKX 0.60%
T Rowe Price Retirement I 2050 Fund - Class I TRPMX 0.60%
T Rowe Price Retirement I 2055 Fund - Class I TRPNX 0.6%
American Century Strategic Allocation Moderate Fund - Class R6 ASMDX 0.73%
T. Rowe Price Retirement Balanced I Fund - Class I TRPTX 0.42%

Invesco Comstock Fund - Class R6 ICSFX 0.41%
iShares S&P 500 Index Fund - Class K WFSPX 0.04%
JPMorgan US Equity Fund - Class R6 JUEMX 0.44%
Alger Capital Appreciation Fund - Class Z ACAZX 0.88%
iShares Russell Mid-Cap Index Fund - Class K BRMKX 0.07%

Delaware Small Cap Value Fund - Class R6 DVZRX 0.75%
Invesco Small Cap Equity Fund - Class R6 SMEFX 0.79%
iShares Russell 2000 Small-Cap Index Fund - Class K BDBKX 0.08%
Carillon Eagle Small Cap Growth Fund - Class R6 HSRUX 0.66%
iShares MSCI EAFE International Index Fund - Class K BTMKX 0.06%
MFS Research International Fund - Class R6 MRSKX 0.77%
Virtus Vontobel Emerging Markets Opportunities Fund - Class I HIEMX 1.29%
Prudential Jennison Natural Resources Fund - Class Q PJNQX 0.79%
Deutsche Real Estate Securities Fund - Class R6 RRRZX 0.53%

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Fri Apr 13, 2018 3:10 pm

Dak52 wrote:Age: 29
Desired Asset allocation: 90/10 (probably 95/5 but working on it)
10% bonds is aggressive. I'd be at least 20%.
Desired International allocation: 70/30 (missing the mark on this too, but working on it)
Do you mean you want 70% of your stocks to be US and 30% to be international?
My wife has a tax-deferred 401k for her work, the match up to 4% so she contributes 4%
What are the options in her 401k plan?
401K Options:
The best options are:
  • iShares S&P 500 Index Fund WFSPX 0.04% -- Large caps, 80% of US stocks
  • iShares Russell Mid-Cap Index Fund BRMKX 0.07% -- Mid caps, 6% of US stocks
  • iShares Russell 2000 Small-Cap Index Fund BDBKX 0.08% -- Small caps, 14% of US stocks
  • iShares MSCI EAFE International Index Fund BTMKX 0.06% -- Developed markets, 75% of international stocks
  • JPMorgan Core Bond Fund JCBUX 0.35% -- US bonds
What are your retirement account percentages (totaling 100%)? For example:
  • Joint taxable -- 3%
    His 401k -- 15%
    His Roth 401k -- 25%
    Her 401k -- 20%
    His Roth IRA at Vanguard -- 10%
    His Roth IRA at TDAmeritrade -- 7%
    His Roth IRA at Edward Jones -- 5%
    Her Roth IRA at Schwab -- 15%

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Fri Apr 13, 2018 9:04 pm

Thank you again Duckie for your response.

1.) 90/20 makes sense, but does emergency fund factor into this? right now my emergency fund (getting 1.5-1.75% in HY saving and MM) is approx 10% of my net worth.

2.) 70/30 was my though for domestic/international, but it isn't firm. Open to suggestions on this. I don't mean to imply I know what I'm doing here.

3.) I don't have access to her 401k account right now (she has the password and is out right now) but the account is new and not yet funded. I remember we elected some combination of low cost funds. They had a similar mix to those available in mine.

4.) Thank you, I am planning to meet with my father this weekend (also more knowledgeable about this stuff than me) and work on rebalancing my accounts based on these suggestions as well as the information contained here: https://www.bogleheads.org/wiki/Tax-eff ... _placement

5.)
USD Cash-- 11% (this is my operating cash and emergency expenses)
AUD Cash+some stock-- 18% (Left over from living in Australia, working on transferring some or all to the US to invest in over next year or so)
Taxable Investments-- 25%
His 401k -- 5% (been at job for less than 2 yrs so this will be growing faster than most other accounts)
His Roth 401k -- 5% (been at job less than 2 years so this will be growing faster than most other accounts)
Her 401k -- 0% (3 months at job so only just kicking in)
His Roth IRA at Vanguard -- 3%
His Roth IRA at Schwab-- 7%
His Roth IRA at Wealthfront -- 2%
Her Roth IRA at Schwab -- 3%
Her Roth at Wealthfront -- 1%
His Inherited IRA -- 20%

Per your earlier suggestion i have already started the process of trying to consolidate these various accounts into one place. A lot of this was me opening accounts and trying different things to learn about investing etc, but the more I learn, the more I think being organized is critical. I plan to transfer most/all of the accounts into my current vanguard account.

Because so much of this is currently in cash (including the Inherited IRA which is still in the process of being finalized) my plan is to just transfer all holdings to vanguard without having to sell anything, and then use the cash make purchases to improve my asset allocation (rather than selling things and realizing gains). I'm not saying I won't say anything, just that I am hoping to improve my allocation without dramatically affecting my taxes for this year.

Update: Since bogleheads are such a fount of knowledge, I may as well throw my other question on here too.
1.) What should I do with our overseas accounts? My wife is not yet a US citizen and we may move back to Australia some day, but right now. 80% of it is in cash and slowly being eroded by inflation. Currently leaning towards transferring 50% of it back to the US and keeping the rest there as a bit of an emergency fund (and then investing some of our USD emergency fund). This would leave us with ideally 50/50 USD AUD emergency reserves. (especially useful if we every have immigration issues or overseas family emergency)

2.) In the process of inheriting an IRA. It was converted to cash as part of the settlement process, but once I get it I plan to invest. It will require RMDs every year, so I want to allocate in such a way that it will support this well. A number of posts on here have suggested keeping a lot of one's bond allocation in this account. Thoughts?

Thank you again for your patience and advice. I have been putting off learning about this stuff for too long and am really doing my best to turn this stuff around before I really screw myself. I find all of this fun and interesting. I have always loved saving money, but working to try to make those savings grow is a far greater and even more exciting challenge.

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Sat Apr 14, 2018 5:24 pm

Dak52 wrote:90/20 makes sense, but does emergency fund factor into this? right now my emergency fund (getting 1.5-1.75% in HY saving and MM) is approx 10% of my net worth.
Your emergency fund does not factor into your retirement portfolio. (And I assume you mean 80/20, not 90/20.)
70/30 was my though for domestic/international, but it isn't firm. Open to suggestions on this. I don't mean to imply I know what I'm doing here.
Vanguard has found between 20% and 40% of stocks in international to be the "sweet spot". See the Vanguard paper link and the discussion. I usually split the difference and recommend 30% of stocks.
I don't have access to her 401k account right now (she has the password and is out right now) but the account is new and not yet funded. I remember we elected some combination of low cost funds. They had a similar mix to those available in mine.
Post the options when available.
USD Cash-- 11% (this is my operating cash and emergency expenses)
While an asset, this is not part of the retirement portfolio.
AUD Cash+some stock-- 18% (Left over from living in Australia, working on transferring some or all to the US to invest in over next year or so)
For a US investor it would be better if you could move it ALL to the US. Right now, it looks like 14.4% is in cash and 3.6% is in stocks. Are the stocks international?
Taxable Investments-- 25%
His 401k -- 5% (been at job for less than 2 yrs so this will be growing faster than most other accounts)
His Roth 401k -- 5% (been at job less than 2 years so this will be growing faster than most other accounts)
Her 401k -- 0% (3 months at job so only just kicking in)
His Roth IRA at Vanguard -- 3%
His Roth IRA at Schwab-- 7%
His Roth IRA at Wealthfront -- 2%
Her Roth IRA at Schwab -- 3%
Her Roth at Wealthfront -- 1%
His Inherited IRA -- 20%
After moving half the Australian assets to the US for investing and considering the remainder part of the emergency fund, investing half the US emergency fund in the retirement portfolio (so 15% gets removed from the portfolio), combining the various accounts, and refiguring the percentages, you could have:
  • Taxable at Vanguard -- 46%
    His pre-tax & Roth 401k -- 12% (currently 50/50)
    Her 401k -- 0%
    His Roth IRA at Vanguard -- 14%
    Her Roth IRA at Vanguard -- 5%
    His Inherited IRA at Vanguard -- 23%
Per your earlier suggestion i have already started the process of trying to consolidate these various accounts into one place. A lot of this was me opening accounts and trying different things to learn about investing etc, but the more I learn, the more I think being organized is critical. I plan to transfer most/all of the accounts into my current vanguard account.
Good.
Because so much of this is currently in cash (including the Inherited IRA which is still in the process of being finalized) my plan is to just transfer all holdings to vanguard without having to sell anything, and then use the cash make purchases to improve my asset allocation (rather than selling things and realizing gains). I'm not saying I won't say anything, just that I am hoping to improve my allocation without dramatically affecting my taxes for this year.
Transferring "in kind" is good for taxable, but your IRAs don't need that. When moving to Vanguard just sell at the current IRA custodian and move cash to Vanguard.
What should I do with our overseas accounts? My wife is not yet a US citizen and we may move back to Australia some day, but right now. 80% of it is in cash and slowly being eroded by inflation. Currently leaning towards transferring 50% of it back to the US and keeping the rest there as a bit of an emergency fund (and then investing some of our USD emergency fund). This would leave us with ideally 50/50 USD AUD emergency reserves. (especially useful if we every have immigration issues or overseas family emergency)
I'd move it all but at least 50% is a start.
In the process of inheriting an IRA. It was converted to cash as part of the settlement process, but once I get it I plan to invest. It will require RMDs every year, so I want to allocate in such a way that it will support this well. A number of posts on here have suggested keeping a lot of one's bond allocation in this account. Thoughts?
An inherited IRA is a good account for bonds.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Sat Apr 14, 2018 6:06 pm

1.) 80/20, correct.
2.) 30% sounds good, I will aim for that.
3.) Pending password reset....
4.) Sorry, of course you are correct. I had included it thinking it was relevant to handing the Australian stuff, but sorry if I confused the issue.
5.) The stocks held in Australia are large cap value stocks of Australian companies. I am slowing coming to terms with what I should be doing and will likely liquidate and move it to the US in the end. If I do ultimately liquidate all the Australian accounts I won't actually be able to transfer the final bit of the money until the end of the year once I have filed my Australian taxes.
6.) Updated retirement only portfolio you mentioned is correct. You are correct about being able to just sell and transfer cash for my IRAs. I had been hung up on the taxable accounts that I am also in the process of consolidating.

Ducky, thank you again so much for all your help. I am excited to go into this week with a clear plan that will help cleanup the mess I have made. I will update this thread again later in the week with updated amounts and where things are headed.

Any advice for how quickly to move when setting up the appropriate asset allocation across my accounts? Should I just go buy 20% bonds, or is this something I should do over a period of months/years to take advantage of dollar cost averaging (or does that even apply in a situation like this).

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Sat Apr 14, 2018 7:55 pm

Dak52 wrote:Any advice for how quickly to move when setting up the appropriate asset allocation across my accounts? Should I just go buy 20% bonds, or is this something I should do over a period of months/years to take advantage of dollar cost averaging (or does that even apply in a situation like this).
Have stuff figured out so you can buy what you want as soon as the accounts are moved. You want an AA of 80% stocks, 20% bonds, with 30% of stocks in international. That breaks down to 56% US stocks, 24% international stocks, and 20% bonds. Without knowing the size of your portfolio here's a possibility:

Taxable at Vanguard -- 46%
44% (VTSAX) Vanguard Total Stock Market Index Fund Admiral Shares (0.04%)
2% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.18%)

His pre-tax & Roth 401k -- 12% (currently 50/50)
10% (WFSPX) iShares S&P 500 Index Fund Class K (0.04%)
2% (BDBKX) iShares Russell 2000 Small-Cap Index Fund Class K (0.08%)

Her 401k -- 0%
0% US stocks

His Roth IRA at Vanguard -- 14%
14% (VTIAX) Vanguard Total International Stock Index Fund Admiral Shares (0.11%)

Her Roth IRA at Vanguard -- 5%
5% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.18%)

His Inherited IRA at Vanguard -- 23%
3% (VGTSX) Vanguard Total International Stock Index Fund Investor Shares (0.18%)
20% (VBTLX) Vanguard Total Bond Market Index Fund Admiral Shares (0.05%)

My comments:
  • You could make his Inherited IRA all bonds and put more international into taxable. This IRA will decrease every year.
  • You could drop the small caps in his 401k. I made it 85% large caps and 15% small caps, but they're not strictly necessary.
  • I'm hoping her 401k has a decent bond fund that's cheaper than his 401k options because soon you're going to need bonds in one of the 401k plans and I'd prefer a bond fund under 0.35%.
  • I realize taxable is going to take time to adjust but this will give you an idea.
Something to think about.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Sat Apr 14, 2018 10:04 pm

Excellent. Thank you.

If I was planning to buy let’s say 50k of bonds, would you really say go buy 50k of a bond fund today? Or should I buy in as interest rates rise? Where do you stand on bond fund vs individual bonds (I.e I-bonds).

Likewise, if I was gonna buy 50-100k of a mutual fund or ETF, would you buy it all at once or over a period of weeks/months?

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Sun Apr 15, 2018 3:02 pm

Dak52 wrote:If I was planning to buy let’s say 50k of bonds, would you really say go buy 50k of a bond fund today?
Yes.
Or should I buy in as interest rates rise?
I wouldn't wait.
Where do you stand on bond fund vs individual bonds (I.e I-bonds).
I prefer mutual funds to individual bonds. I-bonds are an exception if you want them. They're also more hassle.
Likewise, if I was gonna buy 50-100k of a mutual fund or ETF, would you buy it all at once or over a period of weeks/months?
It depends on what kind of mutual fund or ETF. If you're talking about bonds, I'd say buy it now. If you're talking about stocks then that might be different. Right now you have about 5% of your portfolio in bonds and want 20%. Going more conservative you can lump-sum. Going more aggressive might mean Dollar cost averaging.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Mon Apr 16, 2018 6:16 am

In your earlier message you mention a mix of admiral shares funds as well as investor shares funds, and no ETFs. Is there a reason to buy an SX over an AX, or is that just in the case where I would be unable to satisfy the fund minimum for AX? Similarly, if I don’t meet the minimum, would buying ETFs be a viable alternative to paying the higher cost of SX? I know it is more hassle, but I like being actively involved and feeling like I am doing something will help me stay more on top of things.

User avatar
Duckie
Posts: 5884
Joined: Thu Mar 08, 2007 2:55 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Duckie » Mon Apr 16, 2018 4:26 pm

Dak52 wrote:In your earlier message you mention a mix of admiral shares funds as well as investor shares funds, and no ETFs. Is there a reason to buy an SX over an AX, or is that just in the case where I would be unable to satisfy the fund minimum for AX?
The reason was that since I didn't know the size of your portfolio I didn't know if you could buy Admiral shares with less than 5% of your portfolio. If you can meet the fund minimums for Admiral shares then buy them.
Similarly, if I don’t meet the minimum, would buying ETFs be a viable alternative to paying the higher cost of SX? I know it is more hassle, but I like being actively involved and feeling like I am doing something will help me stay more on top of things.
Investor shares aren't that much more expensive than Admiral shares and if you're going to be adding to these accounts, mutual funds to me are a better option. Others on this board prefer ETFs. It's a personal preference.

Dak52
Posts: 12
Joined: Wed Mar 01, 2017 9:16 pm

Re: More strategic asset allocation across taxable/non-taxable account going forward

Post by Dak52 » Mon Apr 16, 2018 4:31 pm

Ok, makes sense. Wanted to make sure I wasn’t missing something.

Post Reply