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  • New to DIY Asset allocation help

    I am in the process of transferring my investment accounts that were invested in America Funds Group MF's with Wells Fargo to Vanguard MF's. I
    have decided on an asset allocation of US Stock 50%, International Stock 30%,REIT 10%, Bonds 10% with a 10% tilt to small cap and emerging markets.
    Over the next 2 years I plan on maxing out my tax protected accounts ~$34k and putting equal amount of ~34k in taxable account for a savings rate of 30% of AGI. After that, additional savings from anticipated increased income will go into taxable account. I have 4 accounts, 3 tax protected and 1 taxable, valued at ~225k and plan to implement my asset allocation in the following manner. I put the percentage each account makes up my portfolio and the percentage I need to weight each class to achieve my target asset allocation.
    Roth IRA(50%)- US Total Stock Index(50%), Total International Index(15%),REIT(15%), Emerging Markets(20%)
    Roth TSP(27.5%)- C fund(20%), S fund(40%), F fund(40%)
    Taxable(20%)- US Total Stock Index(33%), Total International Index(67%)
    Spousal Roth IRA(2.5%)- REIT(100%)

    Reasons for my placements are favoring International in taxable for foreign tax credit, EM, small cap, F fund(bonds), REIT in tax protected for tax efficiency, and limit the number of funds and duplicate locations for simplicity and making rebalancing and tax loss harvesting easy. How does this asset allocation and account placement strategy look?

  • #2
    Good job on getting out of Wells Fargo and to Vanguard.

    Asset allocation looks pretty reasonable, without knowing your age or goals.

    With asset location, I'd ask the following questions:

    You say your goals are to put international in taxable and limit the number of funds across different accounts.  So wouldn't it make more sense to have the EM and/or Total International that's in the Roth IRA in taxable, and the US Stock Index that's in taxable in your Roth?  EM in my opinion is the best to have in taxable, because in addition to the foreign tax credit, it is the asset with the most TLH opportunities due to its volatility.  This is all assuming you can make changes in your taxable account without incurring a sizable capital gain tax.

    If you're in a high tax bracket, you're better off selling the F fund and putting your bonds in a tax-free bond fund in your taxable account.  Do you not have any tax-advantaged non-Roth retirement accounts?




    • #3
      To add upon Lithium comments, it appears to be a good asset allocation for someone who is younger, relatively aggressive, and have been around the block behaviorally (your not going to panic and sell if things go against you).

      FWIW, I would tend to allocate my highest expected return funds in ROTH.  As such I would place the bond funds in Taxable and put stock or international in its place. An ETF for Taxable maybe would be slightly more tax efficient versus a mutual fund as long as you are only adding to it.  Also, I would tend to keep REIT out of ROTH rather in tax deferred.  REIT's don't imo have the upward risk profile for a ROTH due to the mandated payout structure, and the negative interest rate risk.  I want my ROTH to contain the riskiest assets (and highest expected long term return) within my asset allocation.


      • #4
        I am 33 and active duty military for 2 more years.  So I am in the 25% tax bracket and no state income tax for my military pay.  What you say about EM in taxable for TLH makes sense.  My initial thought, which may be wrong, was that EM funds are less tax efficient so keep them out of taxable.  I do not have a tax deferred account currently.  I anticipate having and contributing substantially to one once in private practice, so I max out my roth TSP.


        • #5
          EM funds are about as tax-efficient as other international funds.  Any difference is pretty negligible.


          • #6
            This is fine. Asset allocation fine tuning is overrated.