Looking for specific allocation recommendation for IRAs

[EdwardMM]

My wife and I have $550K in IRAs and I have another $230K in a company-sponsored 401K plan for a total of about $780K in retirement assets.

The funds in the IRAs are all invested in Vanguard ETFs - 100% equities. I picked a range of equities.  My current balances are as follows:

- 7.5% is in Europe
- 7.5% in Asia/Pacific
- 10% in US Small Cap Growth
- 15% in US Mid Cap Growth
- 15% in US Large Cap
- 20% in US Growth (all caps)
- 15% in Technology
- 10% in Cash

My 401K is a "Putnam 2045 Retirement Advantage" fund that is a mix of equities, bonds, and a small portion of cash.

I am looking for what my optimal strategy should be for investing, keeping this in mind:

1) My wife and I are 37/38 today w/ 5 kids.
2) I do not expect to need the funds any time in the near future.
3) We are pursuing a FIRE goal, though not sure if we will pull the trigger. I also have 900k in assets outside of these accounts - some of which I am considering how to invest.

I know that I need to get the cash off the books and put that money to work for me. I also effectively have $155K of cash outside of the retirement accounts that I need to put together a strategy for - not sure what that will be.

Thoughts on allocation strategy including specific fund recommendations are what I am looking for. Thank you so much!

Edward

[Radagast]

Splitting Europe and Asia is a kinda old fashioned method, from back before total international funds were available. Most people now suggest total international, or else splitting developed and emerging markets. And what is up with all the growth and technology funds? They are largely redundant. It looks like someone put this together in 1999 ;-). In theory growth funds should underperform "blend" or "value" funds, and do so with a higher expense than "blend" funds. Oh and cash is pretty pointless in an IRA. It is for immediate spending needs only.

There are an infinite number of ways to break this out. A good starting point as you approach FIRE may look something like 40% US stocks, 30% international stocks, 20% bonds, and 10% your choice. "Your choice" could be more in US, international, or bonds, or it could also be something like REITs, gold ETF, lending club, etc. How many slices are you trying to use? Assuming you are happy with your current level of complexity,  perhaps:
20% US S&P500 (401k?)
10% S&P400 Midcap (IVOO) (ETF)
10% S&P600 Small Cap (VIOO) (these ETF tickers are hilarious, I hope someone got a large bonus)
10% US Midcap Growth (VMGMX) (hey why not, if you are happy right now)
15% International Developed Markets (VTMGX)
15% International Emerging Markets (VEMAX)
20% Total bond, intermediate investment grade bond, or intermediate treasury.

Of course it is possible to simplify that down to a three fund portfolio pretty easily.

When you are approaching FIRE it is probably best to treat all money as part of the same fund. Develop a plan that incorporates all tax sheltered and taxable money into a single concept. For example, you might want to keep international in taxable accounts to get the foreign tax credit, US S&P500 in the 401k because it is cheapest, and split whatever is left into the IRA's.

What is the expense ratio on your 2045 fund? You will probably be better of using a low cost stock fund and incorporating that into your overall allocation.

[EdwardMM]

Thanks so much Radagast for the recommendations.

As far as someone putting it together in 1999 - sadly that's not the case! I put this together really just picking things that I had heard of and trying to pick low expense ratios and a "variety." Fortunately that hasn't done anything too bad since I did it in 2011 - mostly a pretty good return. But I realize I should be doing something more planful and informed.

My 2045 fund was running at a .5% expense ratio - I actually have had that thing on "coast" for 6 years... I'm going to do a little more research and go with all .1% or lower expense ratios. I noticed I do have Vanguard's 500 Admiral fund in my 401K options at work which has a .05% expense ratio.

Much of my non-retirement assets are in real estate and businesses that I own. I've got some work to do on those fronts as well - but this gives me a good start on the 150K of cash I have outside of IRAs that I need to address.

Thanks again.

Edward

[SeattleCPA]

Edward,

Don't know if you'll find this useful or not, but I use Swensen's allocation (with cheapo Vanguard index funds as building blocks).

That means 30% US stocks, 15% REITs, 15% TIPS, 15% intermediate treasuries, 15% developed markets, and 10% emerging markets. You can easily model this portfolio's characteristics using something like https://www.portfoliovisualizer.com/backtest-portfolio

With regard to asset location (so what's in a tax-deferred account and what's in a taxable account), I think we want enough stuff in the tax-deferred accounts so we can do our rebalancing there, without getting hit with taxes.

And then I know it's not a BIG deal, but I think we can hold any permanent International stuff in our taxable accounts since that'll let us get the foreign tax credit (which we'll otherwise lose)... and then if we have permanent US stocks stuff that's pretty tax efficient to hold in a taxable account too.

I guess it goes without saying, but obviously the bonds and REITs belong in our tax-deferred accounts.