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  • Asset allocation

    Hi,

    My wife and I are both 1st yr ER attendings and both naive to the exciting world of finance.

    I practice in employee model and have work 401k which offers descent Schwab ETFs and an HSA with Vanguard total stock/bond options. My wife is an independent contractor. Im getting ready to open up solo-401k for my wife at Vanguard.

    After reading handful of books and consistently following WCI, i have decided 80/20 stock/bond distribution.

    My question is, should i focus on his and hers asset allocations separately or should i try and design a combined portfolio to ultimately show the 80/20 that i desire? Any ideas will be greatly appreciated.

    Sorry if the question is too basic or vague, I am very new to this field and I truly appreciate everyones time and input.

  • #2
    Not knowing anything about your overall situation, my simple reply is to focus on each separately. Keep each 401 K at your desired asset allocation. After you have maximized your tax advantaged accounts, then you can consider how best to utilize the taxable accounts. In the taxable I would stay with more tax efficient assets (i.e. VTSAX and VWITX or the like) and rebalance with new money as needed (like once a year maybe). Learn about backdoor Roth IRA's early on and keep reading WCI and asking questions. You won't be naive for long. Good Luck!

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    • #3
      If you are new to investing, keep it simple and stick to 80/20 or a reasonable allocation in each account separately.  I think WCI had a post along these lines pretty recently.  As you get more comfortable with tracking your entire portfolio across accounts, you can do things like rebalancing across your entire portfolio or tax optimization by putting all bonds in tax deferred accounts.  The key is to invest early and often and not get stuck in analysis paralysis mode.  Once you get comfortable investing you can start fine tuning.

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      • #4
        It depends.  Is she fine with you guiding the investments for her account?  Is she okay with an 80/20 portfolio?  I find that often spouses have two different investment philosophies but don't realize it because they have never discussed it.  You may want to talk to her and get some guidance on her risk tolerance.

         

        How's that saying go about happy wife and happy life?

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        • #5
          If you have identical/similar tolerance for risk, you could consider making you overall (vs. individual) asset allocation.  Given you self stated current naive with finance, it would be easier to have asset allocation at the individual level.  As you get more comfortable with finance/investing you can transition to a 'family' asset allocation.

          A caveat:  It is rare for new investors to appropriately understand their individual risk tolerance, so you'll need to work to understand it for you and your wife. Doing a survey by an advisor/brokerage firm may provide a range, but is not a substitute for experience/discipline.

          If you and your wife are in your late 20's/early 30's, I would question the 20% bond allocation.  Again I don't know/understand your risk tolerance relative to my younger self .

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          • #6
            I like the 80/20 in each individual account, particularly when all are tax-advantaged space.  When you start a taxable, then you might consider doing some specializing in order for TLH, but starting off, keep it as simple as possible.  When it's 80/20 in each account, it makes re-balancing very easy.  Additionally, allocating future contributions is difficult when you have different amounts going into different accounts at different times (401k vs HSA, eg).

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            • #7
              I would suggest the 80/20 for each account for psychological reasons.  If it was in aggregate then the person with the bonds might be annoyed in a few years.  From an alternative perspective though, keep in mind fees.  If you have no transaction fees in your account then try to eat up as many positions as possible so her account would have fewer transaction fees if applicable.

              I would also tend to agree with a previous post on allocating 20% to bonds.  I'm 33 and still have no bonds in my portfolio.  Yes I have investments to help me control volatility, but you are taking advantage of dollar cost averaging so I would be comfortable going higher on the risk until you have accumulated some wealth in the accounts.

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              • #8
                I strongly believe that each investment goal should have it's own AA.  Moving forward a few decades, your 529s, emergency fund, DAFs, Roths, HSAs, etc. should each have a unique AA.   With each AA, choose an appropriate rebalance trigger.

                Dated advice from the past included asset location based upon tax efficiency.  This was impactful in those days of high bond interest rates, but less tax-efficient today.

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