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Asset Allocation Advice

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  • Asset Allocation Advice

    I am finally at the point where I can start investing heavily and wanted to get some advice from everyone. As background, me and my partner are planning to put away around $100-110K/year (about 30% of gross income). I am a fan of passive index investing. Our breakdown of investments will likely look something along the lines of:

     

    My 401(k): $18K + $8K (employer match) = $26K

    His 401(k): $18K + $7.5K (employer match) = $25,500

    My backdoor Roth: $5,500

    His backdoor Roth: $5,500

    Taxable Vanguard account: $37,500

    Total: $100K/year

     

    I have only opened my 401K recently and am invested in 25% each of small cap index, mid cap index, large cap (s&p 500) index, and international equity index through Principal financial. My partner has his 401K invested through Merrill Lynch and is solely in a Target Date retirement fund.

     

    I'd be interested to hear everyone's thoughts or advice on how to spread out investments across the Roths and taxable Vanguard account we will open soon, in conjunction with our 401ks. I'm not sure how to set it up to be as efficient as possible both from a growth and a tax standpoint.

     

    Thanks for any advice!

  • #2
    If you have access to an HSA, be sure to max that our at $6,750. 457(b) is usually considered a good option, too, when available, particularly if it's a governmental 457(b).

    Read up on tax efficiency Bogleheads and asset location at WCI.

    If you want to keep it simple with a three-fund portfolio or similar, make a spreadsheet to track your assets across all accounts and set it up to calculate the percentages of each to make rebalancing simple.

    In general, you want the taxable account to have assets with low dividend yield in taxable to avoid unnecessary taxes. So index funds like Total Stock Market or Total international, and if you want bonds there, only a Muni bond fund. International funds in taxable will give you a tax credit on foreign tax paid, an advantage that you lose if you keep international funds in tax-advantaged accounts.

    Assets like REIT fund or Total Bond Fund should go in a tax-advantaged account like the 401(k).

    Cheers!

    -PoF

     

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    • #3
      Thanks! I'll read up some on that.

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      • #4
        The only thing I would add to what PoF stated, is reading WCI's post on 457(b). Afterwards, learn more about the 457(b) you are offered and decide if it's worth it.

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        • #5
          you should probably keep everything under 1 thread.

          really your AA is the 2nd most important factor after amount saved, which you are already doing.

          i still recommend some bonds. 10% is easy to do, gives you some powder, diversifies, etc.

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