Taxable Asset Allocation

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
trismegistos
Posts: 10
Joined: Wed Jun 22, 2022 9:44 am

Taxable Asset Allocation

Post by trismegistos »

Currently maxing out my 401(k) and Roth IRA. I keep fixed income in my 401(k). However, I do not have any international exposure in my tax advantaged accounts.

I recently started a taxable brokerage account and want some international exposure there for diversification as well as foreign tax credit purposes. My current holdings are as follows:

VTI - 70%
VEA - 30%

Is there anything else I should be doing? Is there a specific tilt I should add in order to offset the lower returns of not doing 100% VTI?
User avatar
Duckie
Posts: 8829
Joined: Thu Mar 08, 2007 2:55 pm

Re: Taxable Asset Allocation

Post by Duckie »

trismegistos, welcome to the forum.
trismegistos wrote: Wed Jun 22, 2022 9:51 am Currently maxing out my 401(k) and Roth IRA. I keep fixed income in my 401(k). However, I do not have any international exposure in my tax advantaged accounts.
Does your 401k have a decent international option? Obviously your Roth IRA does.
I recently started a taxable brokerage account and want some international exposure there for diversification as well as foreign tax credit purposes. My current holdings are as follows:

VTI - 70%
VEA - 30%
Since you're just starting a taxable account it must be fairly small relative to your other accounts. 30% of a small account is very small. What do you want your international AA to be across all accounts?
Is there a specific tilt I should add in order to offset the lower returns of not doing 100% VTI?
If you want international for diversification you need to expect returns different from US. Tilting to something to goose those expected returns is not a good idea.
Last edited by Duckie on Thu Jun 23, 2022 6:22 pm, edited 1 time in total.
harikaried
Posts: 2106
Joined: Fri Mar 09, 2012 3:47 pm

Re: Taxable Asset Allocation

Post by harikaried »

trismegistos wrote: Wed Jun 22, 2022 9:51 amforeign tax credit purposes
You should look at the overall cost as a Total US index fund might have lower dividends instead of trying to get a portion of international income back via credit.
Topic Author
trismegistos
Posts: 10
Joined: Wed Jun 22, 2022 9:44 am

Re: Taxable Asset Allocation

Post by trismegistos »

Does your 401k have a decent international option? Obviously your Roth IRA does.
It does but for my tax-advantaged accounts I want the returns to be maximized, so I'm making a long-term bet that US stocks will outperform for the foreseeable future. But I also want to hedge this bet with some international diversification in my taxable account.
PowderDay9
Posts: 680
Joined: Fri Oct 12, 2018 12:29 pm

Re: Taxable Asset Allocation

Post by PowderDay9 »

trismegistos wrote: Wed Jun 22, 2022 7:59 pm
Does your 401k have a decent international option? Obviously your Roth IRA does.
It does but for my tax-advantaged accounts I want the returns to be maximized, so I'm making a long-term bet that US stocks will outperform for the foreseeable future. But I also want to hedge this bet with some international diversification in my taxable account.
I do the opposite. I put international in the tax-advantaged accounts because the higher dividend compared to total US. The foreign tax credit is smaller than the additional capital gains that would be paid on the larger dividend. I'm in a high tax bracket so YMMV.

US has had a great run. I don't know which will outperform over the next several decades. Based on current variations, it wouldn't surprise me if international is the better investment.

In retirement, would you rather have your gains in traditional tax-advantage accounts that are subject to ordinary income taxes and minimum distributions or in a taxable account subject to LTCG (that might be 0%) and no minimum distributions?
Affable at 50
Posts: 209
Joined: Fri Dec 27, 2019 2:34 am

Re: Taxable Asset Allocation

Post by Affable at 50 »

OP, something to consider:

I prefer to use my 401k to hold my desired international and fixed income allocations and maintain a tax efficient taxable account.

Since my 401k is my largest account, another advantage to this approach is there ample room to correct my portfolio’s asset allocation tax-free if it does not match my desired asset allocation.
UpperNwGuy
Posts: 8081
Joined: Sun Oct 08, 2017 7:16 pm

Re: Taxable Asset Allocation

Post by UpperNwGuy »

trismegistos wrote: Wed Jun 22, 2022 9:51 am Currently maxing out my 401(k) and Roth IRA. I keep fixed income in my 401(k). However, I do not have any international exposure in my tax advantaged accounts.

I recently started a taxable brokerage account and want some international exposure there for diversification as well as foreign tax credit purposes. My current holdings are as follows:

VTI - 70%
VEA - 30%

Is there anything else I should be doing? Is there a specific tilt I should add in order to offset the lower returns of not doing 100% VTI?
I think you should buy VEA in your 401K and/or IRA and only buy VTI in your taxable account. This approach will (a) be more tax efficient and (b) enable easier rebalancing.
harikaried
Posts: 2106
Joined: Fri Mar 09, 2012 3:47 pm

Re: Taxable Asset Allocation

Post by harikaried »

trismegistos wrote: Wed Jun 22, 2022 7:59 pmIt does but for my tax-advantaged accounts I want the returns to be maximized
Is your 401k Traditional or Roth? If it's Traditional, then you'll need to pay future income taxes on the growth and original money deferred. If the money was going to a taxable account, you pay current income taxes then likely long-term capital gains taxes on the growth potentially at 0%.
Topic Author
trismegistos
Posts: 10
Joined: Wed Jun 22, 2022 9:44 am

Re: Taxable Asset Allocation

Post by trismegistos »

harikaried wrote: Thu Jun 23, 2022 11:49 am
trismegistos wrote: Wed Jun 22, 2022 7:59 pmIt does but for my tax-advantaged accounts I want the returns to be maximized
Is your 401k Traditional or Roth? If it's Traditional, then you'll need to pay future income taxes on the growth and original money deferred. If the money was going to a taxable account, you pay current income taxes then likely long-term capital gains taxes on the growth potentially at 0%.
Half traditional contributions and half Roth contributions. My IRA is Roth.
harikaried
Posts: 2106
Joined: Fri Mar 09, 2012 3:47 pm

Re: Taxable Asset Allocation

Post by harikaried »

trismegistos wrote: Thu Jun 23, 2022 12:15 pmHalf traditional contributions
You can put international equities in that portion of the 401k and keep taxable simple with just US equities.
Post Reply