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Fund Allocations in Portfolio

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  • Fund Allocations in Portfolio

    After finding this site (about 10 years too late) and reading everything I can along with linked sites I'm taking the steps to start managing my own portfolio:

    Due to job changes I have several accounts that I want to consolidate. I'm fortunate enough to max out 401(k) and HSA contributions every year and take profit-sharing distributions also. I have opened an individual taxable brokerage account through Fidelity (its where the 401k and HSA are through work) and have a separate account managed by a certain company mentioned in the blogs on this site...I'm beating them with low-cost ETFs in my own account vs their management fees and similar MF investments - surprise surprise.

    Once I take the steps to consolidate accounts (rolling over current IRA to 401(k), and consolidating taxable accounts, I plan to open a traditional IRA and convert the yearly contribution to a Roth also.

    Given all this, I want to allocate about (I have also looked at further diversification within the categories):

    50-55% US Stock

    20-25% International Stock

    15-20% Bonds

    5-10% REIT

    Looking at my 401(k) options there are low-cost bond-funds, total market index funds, and target retirement date funds but no options for REIT alone.

    Would it be advisable to make up REIT allocations in an HSA which has more investment options available in the tax deferred account, continue to contribute to the backdoor Roth IRA every year and allocate those funds to REIT, explore a self-directed 401k with more investment options? Does it make a big difference if they are all tax-deferred accounts?

    I also have an infamous whole-life policy I've been paying on for nearly 5 years and strongly considering cashing it out (at a loss) to use the money elsewhere.

    First Post here - happy to provide more information. Thanks for any input

  • #2
    I don't have access to an HSA so have never thought about if the money there would be part of my overall AA or not.  Interested to see what other say on that topic as eventually I would still see that money being used for health care just much later in life.  I doubt many are treating their 529 money as part of their overall AA and I see an HSA the same way.

    I hold my REIT in my Roth as like you no work options exist for it. My REIT allocation gets the most out of line from a rebalancing standpoint because it is only in that account and I can only contribute once per year but I don't care that much.  I'd just invest all the Roth in REITs and eventually it would reach your desired allocation over the years.


    • #3
      REITs are extremely tax-inefficient and belong in a tax-deferred account for that reason.

      I also think that they are an "optional" asset class, especially since they are already represented in S&P 500 (and similar) index funds, about 3%.


      • #4
        REIT could work well in HSA, especially if drawn tax-free for healthcare.  Personally I prefer Roth for REIT since it has both high growth and unqualified dividends, so its tax-free withdrawal and growth respectively make it a good fit there, but HSA has similar tax advantages (if drawn for health).

        Even if it is drawn like a normal IRA (at marginal income rate), the worst tax inefficiencies should still be allayed by the dividends not being taxed.