Author Topic: Best way to move towards desired asset allocation?  (Read 2940 times)

tannybrown

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Best way to move towards desired asset allocation?
« on: June 22, 2012, 08:42:12 AM »
Hi again,
I'd like to move towards the following asset allocation in my Roth IRA:

25% EFA
25% IVV
25% IWV
25% TIP

Any new funds I put in the Roth aim at that asset allocation, but the majority of the funds in the account are with FICDX and FLPSX.  As they're mutual funds, they'll trade at the end of the day and I won't know the exact price they trade at until it's processed, but I will know the exact price (more or less) of the ETFs I'm buying the next day.

What's the best way to sell and move towards my desired asset allocation?  All at once on a random day, to avoid trying to time the market? Slowly over time to dollar cost average? 


arebelspy

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Re: Best way to move towards desired asset allocation?
« Reply #1 on: June 22, 2012, 04:04:36 PM »
You should first look to overall AA, then differentiate between types of accounts (i.e. strategies that are highly taxed in the Roth, which has no tax liabilities, and tax aggressive in other accounts, etc.)

Often this means that an account like a Roth, in particular, won't be diversified at all (will have a large bulk of the same asset class, at the very least), but will be diversified within the context of the larger portfolio.

Is there a particular reason why you're targeting this particular AA within the Roth?
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Mr Mark

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Re: Best way to move towards desired asset allocation?
« Reply #2 on: June 22, 2012, 04:18:15 PM »
AA refers to your stash, not just an account.  So as Arebelspy says, the roth should hold the highest tax liability investments.

For the rebalance, there should be a random date  to avoid any timing impulse ( your birthday for example) , but while saving, direct  your monthly purchases to improve the AA as much as you can, so if the shares are down relative to the bonds, you'd buy those. One would hope you shouldn't have to sell anything as you're in accumulation mode, and that the purchases over the year enable a rebalance.

Just watch out for those trading costs and fees.

tannybrown

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Re: Best way to move towards desired asset allocation?
« Reply #3 on: June 22, 2012, 06:00:34 PM »
This AA is just from the Intelligent Asset Allocator's intro.  It's the same in the 401k and in the Roth: 25% in each. Obviously, this may not be the best way to proceed. 

I think once we max out the $17k in the 401k and have more to invest, we may think of putting the more tax friendly parts of this AA in a brokerage account.  But, we're not there yet. 

Two follow up questions:

1.  As all the savings money currently goes into the 401k (10% of income tax deferred, and another 5% as Roth 401k contribution) and Roth IRA (2 both being maxed), and they're both tax sheltered (but in different ways), is there a particular asset class we should put in one over the other?

2.  We have approx 70k in other investments from inheritances that are subject to capital gains.  We were planning to divide among the same 4 asset classes and drop them into a Vanguard brokerage account.  Per your posts, that may not be the best thing.  Can you suggest a tax savvy approach for those 4?

arebelspy

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Re: Best way to move towards desired asset allocation?
« Reply #4 on: June 22, 2012, 06:36:45 PM »
Without looking into those four individually, this (general, rule of thumb) chart may help you.

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tannybrown

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Re: Best way to move towards desired asset allocation?
« Reply #5 on: June 24, 2012, 02:57:38 PM »
That's really helpful, aerbelspy.  Thank you -- I appreciate how often you're able to advise on these issues.

It seems that none of the indexes have a particularly tough tax liability...though it seems the short term bonds have a moderate one.


arebelspy

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Re: Best way to move towards desired asset allocation?
« Reply #6 on: June 24, 2012, 03:51:00 PM »
That's really helpful, aerbelspy.  Thank you -- I appreciate how often you're able to advise on these issues.

No problem.  I saved that chart as soon as I ran across it, knowing it was super helpful for me, and figured it would be for others as well.

Sounds like the best idea is put your short bonds in the Roth, so you may have a higher % of them in your Roth, but still keep them at 25% overall for your portfolio.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.