Author Topic: Allocate and diversify within each category or just your portfolio as a whole?  (Read 1537 times)

firewalker

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Is it important to be diverse in each investment vehicle or could I allocate, for example, all bonds to the 401k and all stocks to the IRA?

innerscorecard

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Why would it be important to be diverse in each investment vehicle? They are just vessels. You as a person own them all.

xenon5

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The main consideration for account-wise allocation is taxes. 

http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

REITS and bonds are generally taxed higher than stocks, so you'd want to prioritize putting them in tax free/deferred accounts. 

The other consideration is fund fees:  For example, if you're going with vanguard mutual funds, you want to get to $10,000 as quickly as possible for a fund in order to get Admiral shares.  Having 5000 in a taxable and 5000 in an IRA of the same fund means you're paying higher fees than having all 10,000 in one place.  Of course, it's not always feasible to make the math add up perfectly here due to annual contribution limits.  Alternatively you can use ETFs until you get $10,000 of the mutual fund version or just stick with ETFs to avoid this problem

Other than that it doesn't matter as long as the weighting of all your holdings across all your accounts match your target allocation.
« Last Edit: February 01, 2015, 10:25:54 PM by xenon5 »

Dodge

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Xenon5 hit it on the head. While I'd love to put all bonds in my 401k, the bond funds available there have ridiculous fees. As a result, my 401k is incidentally 100% stocks. Luckily I have enough space in my IRA to fit all my bonds there.

firewalker

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« Reply #4 on: February 01, 2015, 11:27:58 PM »
Thank you,  Xenon5 and Dodge, for explaining this for me. Much appreciated.