Asset allocation across accounts

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date Asset allocation across accounts Cplus 12-22-2009  Re: Asset allocation across accounts FranksPlace2 12-22-2009  Re: Asset allocation across accounts Default User 12-22-2009  Re: Asset allocation across accounts Ron Peterson 12-24-2009  Re: Asset allocation across accounts jIM 12-28-2009
Posted by Cplus on December 22, 2009, 5:03 am I have taxable investements and non taxable investements (roth, traditional IRA, 401K etc.). My question is should they be part of one big portfolio or two separate portfolios. In case of taxable accounts there is more flexibility because one can buy and sell lot of different funds and get a desired asset allocation. In case of retirement accounts the possible investments are limited by fund minimums (such as vangaurd needs atleast $3000), restrictions by IRS (such as only $5000 contributions in 2009) and restrictions in availability of funds through 401K. So if I want to construct one Big portfolio my lack of flexibility in retirement accounts limits proper asset allocation. Similarly how should one treat 529? Your thoughts on this topic are much appreciated. Posted by FranksPlace2 on December 22, 2009, 8:48 am > I have taxable investements and non taxable investements (roth, ... > So if I want to construct one Big portfolio my lack of flexibility in > retirement accounts limits proper asset allocation. > One of the major goals of portfolio analysis is to have the "right" balance of stocks and bonds. More stocks increase growth and volatility; more bonds provide some safety but less growth. You need to consider this from the perspective of your total portfolio. Consider the amounts you currently have as well as what you are buying. You might evaluate your portfolio based on estimated after-tax amounts. Roth IRA is tax free; after-tax investments are subject to capital gains and tax deferred investments (401k, IRA) are treated as ordinary income. Frank Posted by Default User on December 22, 2009, 2:11 pm Cplus wrote: > I have taxable investements and non taxable investements (roth, > traditional IRA, 401K etc.). My question is should they be part of one > big portfolio or two separate portfolios. If you don't treat it as one, then you often end up with assets placed inefficiently for tax purposes. It's difficult to evaluate any particular situation without a thorough review of all the facts. That would include things like the relative balance of the taxable vs. tax-advantaged accounts, and choices in 401(k) plans. 529 plans generally have a different objective and timeframe than retirement plans, so a separate allocation there can be reasonable idea. Brian -- Day 323 of the "no grouchy usenet posts" project Posted by Ron Peterson on December 24, 2009, 10:58 pm > I have taxable investements and non taxable investements (roth, > traditional IRA, 401K etc.). My question is should they be part of one > big portfolio or two separate portfolios. Treat them as one large portfolio to make managing the accounts easier. > In case of taxable accounts there is more flexibility because one can > buy and sell lot of different funds and get a desired asset > allocation. Roth and Traditional IRAs allow the purchase of individual stocks or funds. > In case of retirement accounts the possible investments are limited by > fund minimums (such as vangaurd needs atleast $3000), restrictions by > IRS (such as only $5000 contributions in 2009) and restrictions in > availability of funds through 401K. I would recommend using ETFs instead of traditional funds to enhance liquidity. > So if I want to construct one Big portfolio my lack of flexibility in > retirement accounts limits proper asset allocation. I don't think that you have much of a limitation. There are usually funds that match the S&P 500 even in a 401K. -- Ron Posted by jIM on December 28, 2009, 10:50 am > I have taxable investements and non taxable investements (roth, > traditional IRA, 401K etc.). My question is should they be part of one > big portfolio or two separate portfolios. > > In case of taxable accounts there is more flexibility because one can > buy and sell lot of different funds and get a desired asset > allocation. > > In case of retirement accounts the possible investments are limited by > fund minimums (such as vangaurd needs atleast $3000), restrictions by > IRS (such as only $5000 contributions in 2009) and restrictions in > availability of funds through 401K. > > So if I want to construct one Big portfolio my lack of flexibility in > retirement accounts limits proper asset allocation. > > Similarly how should one treat 529? > > Your thoughts on this topic are much appreciated. Good questions. My suggestion is for retirement you have "one allocation". Might be 80% stocks-20% bonds, might be something more complex (with REIT- commodities-foreign stocks and other investments). How you implement this depends on the relative sizes of each account. In my opinion if account balances are lopsided, try your best to implement the same allocation in every portfolio. In my case, my account balances are about 4X the size of my wife's. And my Rollover IRA and 401k are about 2X the size of my Roth. The forces you mention (contribution limits) drive much of this lopsided account balance. Each of these accounts is invested with 35% large cap-15% mid cap-15% small cap-15% international large cap and 10% international small cap or emerging markets and 10% bonds. I do this so when I rebalance one account, I do not need to retrieve the other 5 account balances and start selling fund X in account A to buy fund X' in account B as part of my rebalance. Part of my own issue is that my 401k has decent funds, but they are institutional funds specific to my employer. I cannot xray them, I cannot examine all their holdings "real time" or enter a 5 letter ticker symbol into any portfolio tracking tool to measure their progress. And this account is a significant amount of my retirement monies. In summary, all retirement accounts create 1 retirement allocation. How you slice and dice the accounts (all accounts have same allocation or fund A in account 1 and fund B in account 2 and fund C in account 3) is a function of how you want to manage things. With lopsided account balances, it is my opinion that its best for each account to have the same allocation which makes rebalancing any account easy. I can offer more insight into this, if interested (I have other things I do to make sure the 6 accounts I have (Roth, Rollover and 401k for each spouse) are working in complimentary fashion. As for 529, that money has a different purpose, with a much shorter and finite timeframe. With our retirement, I am highly aggressive (80% + equities), with our 529, I am much much much more conservative (50% equities, 50% bonds; removed all foreign and small cap equities). I have further opinions on why a 529 should be more conservative, if you want them, please ask. Similar Threads Posted Asset Allocation and MVO May 16, 2007, 7:12 pm Pls help Asset Allocation Question October 13, 2006, 6:49 pm Asset Allocation question October 20, 2006, 6:24 pm Asset Allocation question December 22, 2006, 11:25 am re: asset allocation/ bonds January 9, 2007, 1:34 pm Re: Matrix Asset Allocation August 1, 2007, 4:05 pm Zvi Bodie's asset allocation January 27, 2008, 7:27 pm Re: Zvi Bodie's asset allocation January 31, 2008, 12:20 pm Does a person have only one asset allocation? March 31, 2008, 8:12 am Help for asset allocation theory April 14, 2008, 1:25 pm