Updated Asset Allocation and Fund Placement

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LibraryMovies
Posts: 12
Joined: Fri Aug 24, 2018 11:32 pm

Updated Asset Allocation and Fund Placement

Post by LibraryMovies » Thu Sep 13, 2018 12:31 am

Age: Mid-30's
Desired Asset allocation: 45% US Stock / 10% Small Cap / 20% International Stock / 5% REIT / 20% Bonds
Current Portfolio: Mid six-figures

Current funds are in low cost index funds, all in tax-advantaged accounts. Accounts include 401a, 401k x 2, 457b, HSA, and Roth IRA x 2.

After a recent job change and updating my asset allocation to the above, I reorganized my fund placement somewhat. 401k 2 has the most limited options, so I started with that account and was able to find a low cost international fund. I then placed REIT, international, and small cap into accounts with tax-free growth, and filled in the rest.

Below is the new fund placement I came up with in order to approximate the updated asset allocation, stay with low cost options, and try to optimize tax efficiency.

401a US Stock Market
401k 1 US Stock Market
401k 2 International (MSCI EAFE)
457b Bonds
HSA Small Cap
Roth IRA 1 Small Cap
Roth IRA 2 REIT and International (small cap and emerging markets)

Questions: I am looking for feedback on my asset allocation and fund placement, but all feedback is welcome.
1. Any suggestions/changes on my updated asset allocation for a mid-30's investor?
2. Is my fund placement optimized within my accounts?
3. I was planning to divide international funds into 65% MSCI EAFE, 20% emerging, 15% small cap. Is this reasonable?

TwstdSista
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Joined: Thu Nov 16, 2017 4:03 am

Re: Updated Asset Allocation and Fund Placement

Post by TwstdSista » Thu Sep 13, 2018 5:04 am

I think your AA and fund placement is good.

I'm not too knowledgeable on the different aspects of international funds (I just use a total international fund), so I'll let someone else chime in on that. I would just make sure you aren't over complicating your international coverage.

I'm assuming your HSA is for retirement (and not for current medical expenses)?

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: Updated Asset Allocation and Fund Placement

Post by ExitStageLeft » Thu Sep 13, 2018 10:16 am

I have no specific advice on the international allocation, but the rest is a reasonable balance. My personal preference would be to drop the REIT as a 5% position doesn't really do much. You already have a small cap tilt.

I would explore how much consolidation you can do. You can roll one of the Roth IRAs into the other, and I suspect at least one of the 401k accounts is from a past employer. Would it help your portfolio management to be able to re-balance within fewer accounts?

LibraryMovies
Posts: 12
Joined: Fri Aug 24, 2018 11:32 pm

Re: Updated Asset Allocation and Fund Placement

Post by LibraryMovies » Thu Sep 13, 2018 9:07 pm

TwstdSista wrote:
Thu Sep 13, 2018 5:04 am
I think your AA and fund placement is good.

I'm not too knowledgeable on the different aspects of international funds (I just use a total international fund), so I'll let someone else chime in on that. I would just make sure you aren't over complicating your international coverage.

I'm assuming your HSA is for retirement (and not for current medical expenses)?
Thank you for your feedback. I like to use total index funds whenever I can, but this international fund was the cheapest option. I was trying to approximate a total international fund by adding the others, but your point is well taken that I might be over-complicating things. I already have a number of accounts to deal with, it might be worth a small increase in fund cost to not worry about it.

As for the HSA, I have an emergency fund that I would use for medical expenses, if needed. The HSA is relatively small, but I plan to use it for retirement. Is small cap a good choice for an HSA?

LibraryMovies
Posts: 12
Joined: Fri Aug 24, 2018 11:32 pm

Re: Updated Asset Allocation and Fund Placement

Post by LibraryMovies » Thu Sep 13, 2018 9:21 pm

ExitStageLeft wrote:
Thu Sep 13, 2018 10:16 am
I have no specific advice on the international allocation, but the rest is a reasonable balance. My personal preference would be to drop the REIT as a 5% position doesn't really do much. You already have a small cap tilt.

I would explore how much consolidation you can do. You can roll one of the Roth IRAs into the other, and I suspect at least one of the 401k accounts is from a past employer. Would it help your portfolio management to be able to re-balance within fewer accounts?
Thank you for your response. You're right that the REIT is relatively small; could you explain why it wouldn't be needed with a small cap tilt?

This list is actually after consolidating accounts. I am in the fortunate position of having two employers with retirement accounts after my recent job change, so I have access to a 401a, 401k, and 457b. My spouse has an additional 401k, and we each have a Roth IRA. I haven't been in this position before, and I'm trying to figure out how people do this.

ExitStageLeft
Posts: 799
Joined: Sat Jan 20, 2018 4:02 pm

Re: Updated Asset Allocation and Fund Placement

Post by ExitStageLeft » Fri Sep 14, 2018 1:06 pm

LibraryMovies wrote:
Thu Sep 13, 2018 9:21 pm
ExitStageLeft wrote:
Thu Sep 13, 2018 10:16 am
I have no specific advice on the international allocation, but the rest is a reasonable balance. My personal preference would be to drop the REIT as a 5% position doesn't really do much. You already have a small cap tilt.

I would explore how much consolidation you can do. You can roll one of the Roth IRAs into the other, and I suspect at least one of the 401k accounts is from a past employer. Would it help your portfolio management to be able to re-balance within fewer accounts?
Thank you for your response. You're right that the REIT is relatively small; could you explain why it wouldn't be needed with a small cap tilt?

This list is actually after consolidating accounts. I am in the fortunate position of having two employers with retirement accounts after my recent job change, so I have access to a 401a, 401k, and 457b. My spouse has an additional 401k, and we each have a Roth IRA. I haven't been in this position before, and I'm trying to figure out how people do this.
Plenty of people have portfolios without a REIT component, so in that sense it's not needed. My point that I didn't express very well is how effective is it at 5%, and does it add complexity to your portfolio without adding value? My preference is a total market indexed stock fund. I'm on the fence about a small-cap tilt. The risk premium is there, so a tilt is justified. I don't see that premium in a REIT, and as a homeowner I have enough invested in real estate as it is. So it's a combination of my preferences to have at most one tilt, and not seeing REITs as worth it to justify diluting the rest of my stock holdings.

https://www.portfoliovisualizer.com/bac ... &REIT3=100

Chip
Posts: 2183
Joined: Wed Feb 21, 2007 4:57 am

Re: Updated Asset Allocation and Fund Placement

Post by Chip » Fri Sep 14, 2018 3:27 pm

LibraryMovies wrote:
Thu Sep 13, 2018 12:31 am
1. Any suggestions/changes on my updated asset allocation for a mid-30's investor?
2. Is my fund placement optimized within my accounts?
3. I was planning to divide international funds into 65% MSCI EAFE, 20% emerging, 15% small cap. Is this reasonable?
I agree that AA and placement look good.

Your international division looks about right, +/- a few percent. I have a similar division. For tax efficiency reasons I put EAFE large cap in my taxable account. EM and small cap are in the Roth.

Nice work!

LibraryMovies
Posts: 12
Joined: Fri Aug 24, 2018 11:32 pm

Re: Updated Asset Allocation and Fund Placement

Post by LibraryMovies » Fri Sep 14, 2018 4:58 pm

ExitStageLeft wrote:
Fri Sep 14, 2018 1:06 pm
Plenty of people have portfolios without a REIT component, so in that sense it's not needed. My point that I didn't express very well is how effective is it at 5%, and does it add complexity to your portfolio without adding value? My preference is a total market indexed stock fund. I'm on the fence about a small-cap tilt. The risk premium is there, so a tilt is justified. I don't see that premium in a REIT, and as a homeowner I have enough invested in real estate as it is. So it's a combination of my preferences to have at most one tilt, and not seeing REITs as worth it to justify diluting the rest of my stock holdings.

https://www.portfoliovisualizer.com/bac ... &REIT3=100
Ah, I see. Thank you for explaining that and including the link; I am motivated to manage my own finances and have read a few financial books, but I get a lot of value in seeing others' thought processes. I don't own a home and don't want to be a landlord, etc, so I included REIT to diversify; it's probably not enough to make a big difference though. I see what you're saying about diluting the rest if it were a big portion. Something for me to think about.

ExitStageLeft
Posts: 799
Joined: Sat Jan 20, 2018 4:02 pm

Re: Updated Asset Allocation and Fund Placement

Post by ExitStageLeft » Fri Sep 14, 2018 7:47 pm

LibraryMovies wrote:
Fri Sep 14, 2018 4:58 pm
Ah, I see. Thank you for explaining that and including the link; I am motivated to manage my own finances and have read a few financial books, but I get a lot of value in seeing others' thought processes. I don't own a home and don't want to be a landlord, etc, so I included REIT to diversify; it's probably not enough to make a big difference though. I see what you're saying about diluting the rest if it were a big portion. Something for me to think about.
I'm still drinking from the fire hose myself. There are plenty of Bogleheads who have their "play money" invested in individual stocks or other non-indexed investments. Nothing wrong with having 5% to dabble with, it's just not my thing. Investing in my kids is where my fun money goes! :moneybag

LibraryMovies
Posts: 12
Joined: Fri Aug 24, 2018 11:32 pm

Re: Updated Asset Allocation and Fund Placement

Post by LibraryMovies » Fri Sep 14, 2018 9:32 pm

Chip wrote:
Fri Sep 14, 2018 3:27 pm
I agree that AA and placement look good.

Your international division looks about right, +/- a few percent. I have a similar division. For tax efficiency reasons I put EAFE large cap in my taxable account. EM and small cap are in the Roth.

Nice work!
Thank you! I'm happy to hear the international mix isn't too far off base.

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