Hi Everyone,
I'm wrapping up reading the Boglehead's Investment Guide. I would definitely recommend it to everyone here. The book covers efficient asset allocation for tax purposes and advises placing tax inefficient funds, like bond funds, in your tax deferred accounts (like an IRA). And placing tax efficient funds like a stock index fund, in your taxable accounts (like a brokerage account). The book also advises applying this methodology across your accounts
To illustrate with some simple figures and two funds, lets say that I am 30 years old, have $50k in a traditional IRA, and $50k in a brokerage account. If I want to keep 30% of my savings outside of equities I think my asset allocation would need to look like this:
IRA
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$30k - Total Bond Market Index Fund
$20k - Total Stock Market Index Fund
Brokerage
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$50k - Total Stock Market Index Fund
While the bond fund makes up 60% of an IRA, it's really 30% of total savings applied across both accounts. I will also point out the book covers how gains and returns on these types of accounts are taxed, and provides some examples to illustrate. But I will spare you those details :)
Does anyone else follow this guidance in practice or have some additional insight they would like to share? My brain says "I want that IRA to be more aggressive, I don't want to put that much money in bonds right now" and doesn't want to look at the accounts together.. Just feels kind of strange.
Thanks everyone..