Author Topic: Asset Allocation Question  (Read 1943 times)

halfshellmeijin

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Asset Allocation Question
« on: July 26, 2015, 07:20:56 AM »
I have an HSA and I only get a small set of funds to choose from. The advice on creating an asset allocation is all over the site, but I had another question. My HSA also has three funds that are already divided into stock and bonds ratios. The aggressive one is something I would see as fitting my needs (80% stock/20% bond). I am debating between allocating my whole plan to this aggressive fund or making my own allocation with the same ratio out of the other funds. Looking at the expense ratios for these funds show that overall expense ratio for making each allocation is identical. Since it is an HSA, I also do not have to worry about transaction fees. The question is, is there an advantage to re-balancing the portfolio myself or should I allow the fund to maintain the allocation?

My instinct is that the fund will constantly re-balance the portfolio and as such may do it so frequently that it would harm my performance.

Also I am having a hard time coming up with a concise phrase to use while searching for the answer my question, so I apologize if there is already a thread about this type of question.

forummm

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Re: Asset Allocation Question
« Reply #1 on: July 26, 2015, 07:36:23 AM »
If your HSA is a relatively small amount of money, it probably doesn't matter what it's invested in, as long as the fees are low. I would make it something similar to what I have as my AA, but I could adjust my funds outside the HSA based on what's in the HSA. So if there is only US stocks in the HSA and I wanted Intl stocks, I would just have a little extra Intl outside the HSA to make up for it.

MDM

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Re: Asset Allocation Question
« Reply #2 on: July 26, 2015, 11:50:45 AM »
My instinct is that the fund will constantly re-balance the portfolio and as such may do it so frequently that it would harm my performance.
That is possible, but I believe unlikely.  You could check the turnover ratio for the various funds to make a more informed judgment.  Google "turnover ratio" and check at least the Investopedia and Morningstar explanations.

halfshellmeijin

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Re: Asset Allocation Question
« Reply #3 on: July 30, 2015, 07:01:47 AM »
My instinct is that the fund will constantly re-balance the portfolio and as such may do it so frequently that it would harm my performance.
That is possible, but I believe unlikely.  You could check the turnover ratio for the various funds to make a more informed judgment.  Google "turnover ratio" and check at least the Investopedia and Morningstar explanations.

Thank you MDM! I was not aware what this was and looked it up. It seems that the preallocated fund will have a lower turnover ratio than making my own allocation, so my worries were unfounded. Thank you for your help, and thank you forummm as well!

Kaspian

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Re: Asset Allocation Question
« Reply #4 on: July 31, 2015, 01:18:17 PM »
My instinct is that the fund will constantly re-balance the portfolio and as such may do it so frequently that it would harm my performance.
That is possible, but I believe unlikely.  You could check the turnover ratio for the various funds to make a more informed judgment.  Google "turnover ratio" and check at least the Investopedia and Morningstar explanations.

It also doesn't matter.  What are aiming towards for returns?  8% average?  6%?  Stick with that idea and don't worry anything else.  Keep your fees low and ignore all the other noise.  Some other fund will most likely beat what you've chosen in any given year, but that doesn't matter.  Also, don't trust your "instincts".  Instinct is emotion and it cannot possibly predict what a market is going to do at any given time.