Author Topic: taxable/roth/roth401k AA  (Read 4067 times)

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
taxable/roth/roth401k AA
« on: July 13, 2013, 06:16:59 PM »
Hi everyone! I'm new here! Good to meet you all.

Everyone seems so knowledgeable when I am reading investor alley posts. So I was thinking to put my AA down to see about advise from everyone. I'm new to investing too(well, truly wanting to do DCA that is). I haven't pull the trigger on Roth or my taxable account yet... Oh I'm not sure if it makes a huge difference but my Roth and Taxable are both with TD Ameritrade.

Background: I'm in my late 20s. I have no debt except the mortgage. Well I'm not quite paying for the mortgage though because the house is rented to others with me living in it - it covers mortgage/insurance/property taxes but I've been contributing $270/month extra on top of what my mortgage payment. I have about $14K in savings account for emergency.

My job gives 401K/Roth 401K as benefit with $1200 annual contribution by the company. I have to contribute at least $1200 to get the $1200 from the company.

Roth 401K   $17K
Large Cap  30%
2055 Portfolio(it's vanguard)  70%

Roth $12K
Vanguard REIT Index ETF (VNQ)  20%
Vanguard Mid-Cap Value ETF (VOE)   40%
Vanguard Small Cap Value ETF (VBR)  40%

Taxable $33K
Vanguard Total Stock Market ETF (VTI)  60%
Vanguard FTSE All-World ex-US ETF(VEU)  40%

I picked all commission free ETFs from TD.
I have not contributed my $5,500 for 2013 Roth yet, which I can transfer from Taxable account to the Roth account before I take the plunge for these AA. After I set up these AA, I will set up DRIP which is transaction fee free from what I was told by TD. I will need to find out how to do DCA on a monthly basis to the taxable account.

I've been trying to get the investing books from the library to really learn but seems like everyone else has the same idea in this city!

Anyway, thank you for your advise!
« Last Edit: July 13, 2013, 06:20:40 PM by kk1 »

matchewed

  • Magnum Stache
  • ******
  • Posts: 4381
  • Location: CT
Re: taxable/roth/roth401k AA
« Reply #1 on: July 13, 2013, 06:35:09 PM »
Okay so your asset allocation is literally one view of the big picture. How do you want your assets divided up between various investment types (equities/bonds/real estate...etc.). Once you have that then you allocate those to various investment vehicles (401ks and IRAs/Roth 401ks and IRAs/standard taxable accounts), that will be best determined by tax efficiency - http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

For your savings towards FIRE it is generally advised to do 401k to match, max Roth, finish 401k, and then do a standard taxable account. This is of course flexible but it is a good rule of thumb.

I hope this helps in some way.

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: taxable/roth/roth401k AA
« Reply #2 on: July 13, 2013, 06:42:50 PM »
Thanks for replying!

I was reading lazy portfollio. I'm not really risk adverse so what I had in mind was 90% equity 10% real estate.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4381
  • Location: CT
Re: taxable/roth/roth401k AA
« Reply #3 on: July 13, 2013, 07:02:07 PM »
I will say for a simple AA you have a pretty complicated distribution of equities. You may want to define what you're holding and why. Although much of what you've listed is equities you have it divided up in total/large/mid/small. Do you know what you want to hold within those designations and how much?

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: taxable/roth/roth401k AA
« Reply #4 on: July 13, 2013, 07:52:26 PM »
I have equities in different categories because of diversification. I guess I'm confused on the reply or what you mean by "designations?"- the ones I listed in each account are what I was aiming to hold.
roth 401k has 17k = 70%(17K x 0.7 = $11,900) of it is in the 2055 portfolio and 30%(17K x 0.3 = $5100 of it is in large cap.
...etc. I don't understand the question, sorry.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4381
  • Location: CT
Re: taxable/roth/roth401k AA
« Reply #5 on: July 13, 2013, 07:58:37 PM »
I guess we're both in the same position then. You seem to have a question regarding your asset allocation and then say you have your assets allocated as planned. So I'm unsure as to your question myself. :)

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: taxable/roth/roth401k AA
« Reply #6 on: July 13, 2013, 08:14:32 PM »
no no this allocation is not set in stone by all means. LOL
Is it too much leaning to equities? Too risky?
You were saying it's too complicated for the distribution of equities... well I was reading from http://www.bogleheads.org/wiki/Lazy_portfolio and looking through it I liked Frank Armstrong's "Ideal Index" portfolio but didn't like the Large blend and small blend...so I kind of modified it a little. I like value so that's why I stuck Large Cap, mid value, small value ETFs in. How can I make it simpler?
I tried to follow bogleheads' instruction about getting the accounts tax-efficient, not sure if I did it right or not.

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: taxable/roth/roth401k AA
« Reply #7 on: July 13, 2013, 08:22:23 PM »
oh and i thought that Frank Armstrong's portfolio has 30% bonds was just too conservative... so i just took that out too lol.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4381
  • Location: CT
Re: taxable/roth/roth401k AA
« Reply #8 on: July 14, 2013, 04:41:21 AM »
An asset allocation is really up to you. Too conservative or aggressive is really up to your comfort level. People may say X is aggressive but some people are okay with aggressive. For instance I'm 95% equities for my asset allocation.

The same goes for the distribution of equities. But know why you don't like something when you choose to change it. Just changing based on a feeling in investing is generally a risky thing.

aj_yooper

  • Handlebar Stache
  • *****
  • Posts: 1091
  • Age: 9
  • Location: Chicagoland
Re: taxable/roth/roth401k AA
« Reply #9 on: July 16, 2013, 08:11:14 AM »
Welcome!

Taking money from a taxable account and then placing it in a Roth IRA will probably cause you to pay taxes on the gains (short or long-term).    That is not efficient.  Taxable accounts means "Do Not Disturb!"  Place money; watch money.

I think it would be simpler to place after-tax money straight into a Roth IRA, say from a checking account; you probably can do it in dribs and drabs, so presto, a form of DCA. 

Follow the suggestion of matchewed re filling accounts.

Your AA is for your total investment portfolio-401k, Roth IRA, taxable.  Develop a written statement of your plan based on your risk/reward levels.  Currently, you seem to be saying, 100% equities (REITS are stocks) and 0% bonds.  By the way, have you ever lost a big chunk of money in the market or know someone who has?  Would you be upset if 30-40% of your EF just disappeared from your checking/savings account?  Bonds can also be used to buy into big drops in stocks when you AA rebalance.  If you do bonds, I would suggest short term investor grade.

Once you have that, develop percents of what type of assets to be buying.  Personally, I think you are making it too complicated with a smaller portfolio $ level.  In your Roth 401k, I would just do the 2055; set and forget, but no need to trade the large cap you already have.  Buy in monthly with the 2055.  For taxable, I would just do the total stock market index; set and forget, but, similarly, no need to ditch the FTSE.  On your Roth IRA, I would also do the 2055, but no need to sell stuff.  My suggestion is to streamline your positions and re-balance your portfolio yearly. 

You have a good start.  Keep it simple until you have a bigger chunk to manage. 

Good on getting others to pay your mortgage and the EF. 

kk1

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: taxable/roth/roth401k AA
« Reply #10 on: July 17, 2013, 09:13:44 AM »
Thank you for your advise aj_yooper.

Yes you are correct - I believe equities is the way to go at this time in my life. I have lost $ in the stock market before... a few thousand... just had to wait to sell it in different years to get that loss on the tax returns. I let it sat. I didn't sweat it. Oh well. I guess I'm pretty aggressive re investing.

Thanks for the tips on the AA.
When matchewed said it was complicated, I just didn't understand why he meant my AA is complicated. Well, when you spelled it out, then yes, I had to agree, LOL, why you and matchewed are saying that. I just didn't know how to go about to get it more simple, I guess. A good example of this is like I have a plumbing problem and I tried to figure it out and I do all this extra stuff and then when a plumber comes, 2 seconds, done. I'm like marveling, how simple.

Thanks again!!