Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

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scintillator
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Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by scintillator »

Imagine I decided I want 70% VTI, 20% BND, and 10% VXUS. And say I have a taxable account, a trad IRA, a 529 for a 12-year-old's college, and I'll be getting a pension. Should I try to have that 70-20-10 allocation in each of the taxable, the IRA, and the 529? Or should I allocate it more like 90-0-10 in the taxable, 0-100-0 in the IRA, and maybe 50-40-10 in the 529 (given its shorter time horizon)?

As for the pension, I assume I treat that basically like bonds, and so I would lower my bond allocation everywhere, and if it were a very sizable pension, maybe I would be all-stocks in both taxable and IRA?

Tell me what Boglehead wisdom is on this.
wunwun1
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by wunwun1 »

I think you should aim for the whole portfolio and take advantage of some of the benefits of asset location.

Read more about tax efficient way of placing your assets here. https://www.bogleheads.org/wiki/Tax-eff ... _placement
lakpr
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by lakpr »

I would not treat the 529 plan as part of my portfolio at all. That is deemed to be a completed gift to the beneficiary, not something you can take back.

Next, if the pension is guaranteed and vested, yes I would take that to be equivalent of bond allocation in my portfolio, and be 100% equities everywhere else. If the pension is not vested, then I would ignore that I even have a pension in the first place, and go 70:10:20 in my portfolio
pseudoiterative
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by pseudoiterative »

if you wish to make the decision even more complicated by considering more factors, you could consider what happens in failure modes. all things equal, in the event that something went awry and the funds in one of the accounts vanished, you might prefer a bit of diversity in each account. that might make things a little more robust in the event of a failure, at the cost of some tax inefficiency.
UpperNwGuy
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by UpperNwGuy »

It all boils down to the taxes. Distribute your funds amongst your accounts in the most tax-efficient way.
feh
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by feh »

lakpr wrote: Sun Jul 07, 2024 4:52 am I would not treat the 529 plan as part of my portfolio at all.
+1

And invest in that account for the given time horizon.
Pepper11
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Pepper11 »

lakpr wrote: Sun Jul 07, 2024 4:52 am I would not treat the 529 plan as part of my portfolio at all. That is deemed to be a completed gift to the beneficiary, not something you can take back.

Next, if the pension is guaranteed and vested, yes I would take that to be equivalent of bond allocation in my portfolio, and be 100% equities everywhere else. If the pension is not vested, then I would ignore that I even have a pension in the first place, and go 70:10:20 in my portfolio
I agree - do not treat 529 as part of portfolio/asset allocation.

However, funds in the 529 are not deemed to be a complete gift until spent. The funds remain in ownership of the account holder, not the beneficiary. The funds can be withdrawn at any time for any reason by the account holder, the gains being subject to ordinary income tax + a 10% penalty.

UTMA/UTGA on the other hand, is in ownership of the beneficiary, not the account holder.
rkhusky
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by rkhusky »

scintillator wrote: Sun Jul 07, 2024 4:10 am As for the pension, I assume I treat that basically like bonds, and so I would lower my bond allocation everywhere, and if it were a very sizable pension, maybe I would be all-stocks in both taxable and IRA?
I would not do that unless you also treat your future expenses as a liability. Or if you can sell part of your pension for cash at any time.

Preferable to treat cash flows separately from assets. And assets should be separated into liquid and nonliquid. I only include in my asset allocation those things that I actively rebalance, which are necessarily liquid.
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Padlin
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Padlin »

Personally I count everything as part of a whole and do not try to keep each account balanced separately. This does make balancing a bit of a struggle, I’ve kept a spreadsheet that I use and balance the overall allocation with just the 401k.

I also would not include a 529, pension, or SS in my AA.
Regards | Bob
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Lawrence of Suburbia
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Lawrence of Suburbia »

I'll be moving to simplify my portfolio maybe this autumn, put everything (apart from TIAA Traditional, my "cash reserve") in the Vanguard Target 2030 fund. So, four accounts in the same exact investment -- because it makes so much sense for me.
Last edited by Lawrence of Suburbia on Wed Jul 10, 2024 1:03 am, edited 1 time in total.
VTHRX/DODWX/TIAA Traditional
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Curly
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Curly »

Lawrence of Suburbia (good screen name :) )

At one time I (think I read) you had substantial investments in Wellesley. If that is correct, and if you don't mind sharing, why did you exit Wellesley?

Re: your plan for VG TDF 2030 in all accounts, you're in good company. During a recent blitz going through all the material at PlanVision, I was somewhat surprised to learn that Mark Zoril has all his investments in one fund: Vanguard TD 2045.

Lawrence of Suburbia wrote: Tue Jul 09, 2024 5:55 pm I'll be moving to simplify my scene maybe this autumn, put everything (apart from TIAA Traditional, my "cash reserve") in the Vanguard Target 2030 fund. So, four accounts in the same exact investment -- because it makes so much sense for me.
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Curly
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Curly »

scintillator

For another point of view, do a search for posts and threads by forum member "Longinvest". He has posted extensively about the pros and cons of maintaining a constant allocation of funds across all account types: taxable, IRA, Roth, etc. I have read much of what he has posted and have attempted to apply some of his advice to our situation. As with many ideas posted here at BH, there is much debate and strong opinions to be considered for your personal circumstances.



*fixed typo
Last edited by Curly on Tue Jul 09, 2024 11:04 pm, edited 1 time in total.
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Curly
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Curly »

Forgot to mention: the 529 accounts wouldn't be part of the Longinvest strategy (as described already above).
SevenBridgesRoad
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by SevenBridgesRoad »

Curly wrote: Tue Jul 09, 2024 9:16 pm scintillator

For another point of view, do a search for posts and threads by forum member "Longinvest". He has posted extensively about the pros and cons of maintaining a constant allocation of funds across all account types: taxable, IRA, Roth, etc. I have read much of what he was posted and have attempted to apply some of his advice to our situation. As with many ideas posted here at BH, there is much debate and strong opinions to be considered for your personal circumstances.
I will second this. At least take a look at this alternative approach. viewtopic.php?t=287967&start=650

I think there are a fair number of us here who take this approach. Sometimes we are mis-characterized as uninformed, or not smart enough, or lazy.
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Lawrence of Suburbia
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Lawrence of Suburbia »

Curly wrote: Tue Jul 09, 2024 9:09 pm Lawrence of Suburbia (good screen name :) )

At one time I (think I read) you had substantial investments in Wellesley. If that is correct, and if you don't mind sharing, why did you exit Wellesley?

Re: your plan for VG TDF 2030 in all accounts, you're in good company. During a recent blitz going through all the material at PlanVision, I was somewhat surprised to learn that Mark Zoril has all his investments in one fund: Vanguard TD 2045.

Lawrence of Suburbia wrote: Tue Jul 09, 2024 5:55 pm I'll be moving to simplify my portfolio maybe this autumn, put everything (apart from TIAA Traditional, my "cash reserve") in the Vanguard Target 2030 fund. So, four accounts in the same exact investment -- because it makes so much sense for me.
I was in Wellesley to take the income (dividends, capital gains) to live on. More time spent here has (more or less) convinced me that a) might as well reinvest, just cash out shares as needed; and b) indexing for minimal cost is certainly the way to go. Vanguard's Target and LifeStrategy series literally have everything an investor needs -- worldwide stocks and bonds in one portfolio, indexed, with very modest fees. Lets Vanguard do the rebalancing, too -- I can't be bothered.
VTHRX/DODWX/TIAA Traditional
zeeke42
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by zeeke42 »

Lawrence of Suburbia wrote: Tue Jul 09, 2024 5:55 pm I'll be moving to simplify my portfolio maybe this autumn, put everything (apart from TIAA Traditional, my "cash reserve") in the Vanguard Target 2030 fund. So, four accounts in the same exact investment -- because it makes so much sense for me.
I wouldn't own a target date fund in a taxable account. This could happen to you: https://www.morningstar.com/stocks/less ... s-surprise. Also, target date funds can change their glide path / mix of assets. In a tax advantaged account you can just switch funds if you don't like the changes. In a taxable account, you can get locked in by the huge tax hit to switch.
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Curly
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Re: Should you aim to do a 3-fund approach in each account, or just across the whole portfolio?

Post by Curly »

Thanks for the reply. Same experience for me as well.
Lawrence of Suburbia wrote: Wed Jul 10, 2024 1:10 am
I was in Wellesley to take the income (dividends, capital gains) to live on. More time spent here has (more or less) convinced me that a) might as well reinvest, just cash out shares as needed; and b) indexing for minimal cost is certainly the way to go. Vanguard's Target and LifeStrategy series literally have everything an investor needs -- worldwide stocks and bonds in one portfolio, indexed, with very modest fees. Lets Vanguard do the rebalancing, too -- I can't be bothered.
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