Opinions on 401K/IRA/Brokerage Index Funds Allocations

[ginoco]

Hi All - I wanted some opinions on my allocation of index funds across my accounts. I fully fund my Vanguard 401K and IRA each year with shares of a target retirement index fund. I understand that I can buy the total stock and bond market index funds, but I appreciate the ease of target retirement funds reallocating themselves for a minor additional fee each year. I place the remainder of my money monthly into a Vanguard brokerage account investing in the VTSAX fund. Does this allocation throughout my three accounts seem efficient in your opinion? Thank you for your comments.

Roth 401K
Vanguard Target Retirement 2055 Fund (VFFVX) - 100% since opening account with a minor mistake below
Vanguard PRIMECAP Fund Admiral Shares (VPMAX) - mistaken allocation selection

Roth IRA
Vanguard Target Retirement 2055 Fund (VFFVX) - 100% since opening account

Brokerage
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) - 100% going forward
Vanguard Real Estate Index Fund Investor Shares (VGSIX) - $3K invested but probably will not purchase any longer

[frugaliknowit]

Hi,

My scenario is similar in that I am totally in the Vanguard Family and have 3 types of accounts:

1.  Regular Brokerage (non-IRA).
2.  401K Rollover (my employer discontinued their 401k a while back...).
3.  Roth IRA

I have 3 opinions regarding your allocations:

1.  At your age, personally, I would NOT own any bonds for retirement purposes, unless you have a low risk tolerance and would panic during a big downturn (how did you handle 2007-2010?).  Since you are target 2055, I am guessing you are pretty young.  I would just "ride the rollercoaster" as long as you are at least 15 years from retirement/FIRE.  Target Date funds allocate bonds based on your age.  I would just "put the pedal to the metal" for now.

2.  While people on this board rave about VTMSAX, it is fairly concentrated in large cap stocks, lacking optimal diversification (check out this podcast:  http://paulmerriman.com/10-reasons-dont-like-vanguards-total-stock-market-index-fund/).  I suggest you follow Paul's "Ultimate Buy and Hold":  http://paulmerriman.com/mutual-funds/ (click on Vanguard) and do 100% stocks if you can stomach it.  Follow the allocations across all accounts (as if they are "one").  This will likely strike you as "too much work" to rebalance...you only need to do it ONCE PER YEAR!

3.  If you want to diversify with REIT's, you probably should do so in retirement accounts, since REIT's are dividend heavy.

[Catbert]

If you're going to buy bonds, don't do it in your Roth.  Stock all the way since you want the biggest gains tax free

[radram]

If you're going to buy bonds, don't do it in your Roth.  Stock all the way since you want the biggest gains tax free

This advice may need modification based on income. Bonds are taxed at the income tax rate for the individual. For a high income individual, they might be better off placing those high taxed investments in tax sheltered locations, like retirement accounts.

But if you are still at the 15% (what is that now, 12%?) bracked, then sure... pay it now instead of later.

[Steeze]

Looks decent, but move your reit fund into the tax sheltered accounts for max efficiency.

Reit dividends are taxed as normal income, best to hold this in a ROTH.

Ideally, only funds with qualified dividends would be held in a taxable account. Additionally you should prefer funds with less dividends in your taxable account so you lower your taxable income each year. At least while you are still working otherwise.

Best types of funds, IMO, for taxable accounts are emerging markets, developed world ex US, and total US indexes.

This is because the foreign stocks can throw off foreign tax credits and have lower dividend rates. The US index also has a low dividend rate and is mostly qualified dividends.

Good luck! Ask in investor alley next time, you will get many more responses!

[seattlecyclone]

If you consider a fund in your 401(k) to be a mistaken allocation, fix it! There's no tax or other consequences for reallocating your money within a retirement account. Might as well get to your desired mix right away.