Do Your Investments Vary by Account Type?

[zurich78]

Hey All-

Still fairly new to the financial game, but I'm just jumping in and I absolutely LOVE this site.  Anyway, here's my question.

I've seen a lot of people refer to investing in index funds and I've seen more than a few people recommend the 3 fund portfolio approach (US Stocks, Int'l Stocks, Bonds at varying levels of AA based on age, etc).

My question is, do you invest in the same things across all of your investment vehicles?  For instance, right now, I only have two investment accounts and they are both retirement accounts. 

- I have a 401K which 100% invested in to a target date mutual fund.
-I also have a Roth IRA which I just started (so there is only $5,500 in there) and the plan is to go with the 3 fund portfolio approach once I have enough money in there to actually be able to do that (account minimums prevent me from allocating accordingly at the moment so right now I have all $5,500 in a US Total Stock Market fund with Fidelity).
- My next step is to open a taxable investment account and after perusing this site I'll probably do it with Vanguard.  But I have no idea what to invest in.  Should I just invest in the same things as my Roth then?  Do you guys invest in different things across your various investment accounts?  If so, how do the investments differ by account and why?

[zinnie]

There is generally a strategy for being tax-efficient by placing different types of investments in taxable vs. tax-deferred. Bogleheads has a good wiki on it here: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

However, I've never been able to reconcile some of those principles with early retirement (i.e. if I have different types in taxable vs. retirement, how do I withdraw from it before I am 60 without screwing up my asset allocation?) We mostly keep the same allocation as our whole portfolio in each type of account to make it easy, but doing my taxes this year and looking at capital gains distributions made me realize that we might want to go more towards the tax-efficiency approach. Maybe someone else has better insight on that part!

[innerscorecard]

There is generally a strategy for being tax-efficient by placing different types of investments in taxable vs. tax-deferred. Bogleheads has a good wiki on it here: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

However, I've never been able to reconcile some of those principles with early retirement (i.e. if I have different types in taxable vs. retirement, how do I withdraw from it before I am 60 without screwing up my asset allocation?) We mostly keep the same allocation as our whole portfolio in each type of account to make it easy, but doing my taxes this year and looking at capital gains distributions made me realize that we might want to go more towards the tax-efficiency approach. Maybe someone else has better insight on that part!

As you get older you want the percentage of bonds (and REITs too by extension) in your portfolio to increase anyways, so since bonds and REITs are the least tax efficient and will be overweight in your retirement accounts, drawing down your taxable money (stocks) first will result in what you wanted anyways.

[hodedofome]

Yes, I have a taxable account that I actively trade in, however I don't feel like messing with my retirement accounts on a regular basis. So, I have a tactical asset allocation strategy that I check once a month on for those accounts. In a trending market I usually don't have to do anything but stay 100 percent invested in US or International stocks, whichever is doing better. However, in a downtrend the system will switch to US govt bonds. This allows me to sleep at night knowing that I won't be holding stocks all the way down, but also not require me to check those accounts often. Only my trading account do I check every day.

[Joel]

Following the principals outlined in the bogleheads link above, I try to have the most tax efficient asset allocation as possible. I've outlined the specifics in my investment policy statement linked in my signature.

[thesinecure]

i mix it up, especially with things like MLPs and other dividend/distribution types of investments

anything that issues a K-1 can sometimes make your tax return a bit more difficult to fill out due to location of the investments, so I prefer to put those into my IRA accounts