Mirror allocation

[Jag295]

I haven't had to worry about how to spread my asset allocation between multiple accounts yet since it's all been in Roth IRA. I've been thinking a lot lately about how to best set things up once I get to a steady state where accounts will likely be: taxable > 401k > Roth IRA > HSA.

WCI and POF have published their strategies which make a lot of sense. Assuming a simple 3- or 4- or 5- fund variant w low cost funds would it make sense to just set up a mirror allocation in each account? Seems like that would make rebalancing easy, but tax loss harvesting could get tricky.

 

[jfoxcpacfp]

Jag295 wrote:

I haven’t had to worry about how to spread my asset allocation between multiple accounts yet since it’s all been in Roth IRA. I’ve been thinking a lot lately about how to best set things up once I get to a steady state where accounts will likely be: taxable > 401k > Roth IRA > HSA.

WCI and POF have published their strategies which make a lot of sense. Assuming a simple 3- or 4- or 5- fund variant w low cost funds would it make sense to just set up a mirror allocation in each account? Seems like that would make rebalancing easy, but tax loss harvesting could get tricky.

 

Click to expand...

That is what we do (mirroring, when possible), but we prioritize long-term growth > TLH.

[Peds]

while mirroring seems easier, it is unnecessary and can lead to less than optimal placement strategy.

 

[cgossage]

I like to mirror for the most part as well. Tax harvesting isn’t too difficult to do with this strategy. Yes, your allocations may not be mirrored exactly, but you can always rebalance within your retirement accounts to get your overall asset allocation in line.

[PhysicianOnFIRE]

I think trying to replicate the asset allocation in each of the various accounts is unnecessary and less than optimal. In some ways it's easier, but in a way it's more complicated, too. When I was getting started, I tried to replicate the same allocation in each account, but I quickly abandoned it.

If you can set up a basic spreadsheet, it's not at all difficult to make sure you maintain an overall asset allocation that matches your desired allocation. When it's time to rebalance, you'll have fewer trades to make. You can optimize for tax efficiency, and as mentioned above, tax loss harvest without worry of wash sales.

Here's what I've got in my various accounts. I could be simplified further, and probably will as I enter retirement.

https://i1.wp.com/www.physicianonfire.com/wp-content/uploads/2018/01/PoF_Portfolio_2017.png?w=609&ssl=1

 

 

[Jag295]

Thanks for the replies.

Are you discounting your pre-tax accounts when you calculate their % or do you figure taxes will be close to 0 with Roth ladder or similar strategy?

Also, how's the ROI been for the breweries?

[Bonez]

I currently have my AA "mirrored" across accounts. Its not exactly mirrored, but I have a target date fund in each my HSA and my Roth IRA that has a an allocation similar to what I have in my 401k. I don't have a taxable account quite yet since I'm prioritizing paying off student loans. That being said, I have enough money in my Roth IRA to qualify for some admiral funds and was considering trading the target date fund for them. The only issue is (and maybe its not even an issue at all) that I contribute $5500 to my Roth right away in the beginning of the year and then my 401k/HSA contributions are split up throughout the year in bi-weekly increments. So even if I forecast what I need in each account to have my overall desired AA, it will be lopsided in January after maxing out the Roth IRA. In the long run when I have a larger portfolio it won't make much of a difference I suppose...

[Donnie]

You can also stick with something reasonable in each of the accounts separately. Rebalancing across accounts can be more trouble than it’s worth depending on options in 529s, 401ks, and HSAs. Some people like fine tuning and “optimizing,” but I don’t think you’re giving up too much by keeping it simple.

[PhysicianOnFIRE]

Jag295 wrote:

Thanks for the replies.

Are you discounting your pre-tax accounts when you calculate their % or do you figure taxes will be close to 0 with Roth ladder or similar strategy?

Also, how’s the ROI been for the breweries?

Click to expand...

I don't, but I'm hopeful I'll be able to do some Roth conversions in the low tax brackets at some point. It helps that I've only got something like 17% in tax-deferred accounts. I did speak to this in a post I provocatively titled My Money is Worth More Than Your Money. I think one commenter had me beat, though.

I've got an equity share in one brewery -- that took a while to get off the ground, and a number of cash calls to help keep things going early on, but it's been doing well the last few years (opened in 2011). I think that will turn out well in the long run. And the dividends are quite liquid. Get it?

The other is a debt deal, and not a very good one at that, but I went ahead knowing that it wasn't necessarily a good investment. I wrote about that one, but haven't yet about the first brewery. Would make for a good post, though.

Cheers!

-PoF