Looking for some thoughts on my asset allocations

dan · 2007-01-30T22:06:17+00:00

I'm 26, I have very low living expenses and no debt. I max out my 401k and Roth IRA every year (and will continue to do so) and have an individual investment account, all 3 are with Fidelity. The #'s below are across all 3 accounts, which are pretty much everything I have except for a few small checking accounts, so its a good reflection of my whole financial situation. The short term investment percentage is higher then it probably should be because it includes about 2 years living expenses in a money market fund.Domestic Stocks 50.76% (50.4 large cap / 34.5mid cap / 15.2 small cap)Foreign Stocks 31.86%Bonds 2.03%Short-term 14.48%Other 0.87%I'd like to relocate in the next year or two, hence the reason for the cash reserves. I'd also like to have capital available to start a small business after I relocate, but at the same time I'd like to invest aggressively since I have so much risk tolerance. A house purchase would only be likely if I don't relocate, other it would be at least 3-5 years away.Thoughts?

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kastnna 19 years ago

I agree jIM that international is probably an important sector(s) that has been overlooked here. The OP is diversified across the US markets, but diversification could be extended even further. The inevitable overlap of 33 funds should also be corrected.

All this tax talk and nobody is touting ETFs? Of course, sales in a taxable account will still be subject to cap gains/losses. ETFs track a sector and/or an index so 6-8 funds could thoroughly diversify the OP. AVERAGE expenses are .09% as compared to 1.4% for mutual funds. There are brokerage transaction fees but they can be minimized in todays competitve online trading world. They trade midday (no missing out on an intraday price climb). They are usually more tax efficient than MFs as they don't spin-off capital gains. And although it probably doesn't apply here, they can be margined and/or optioned.

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Jose Bailen 19 years ago

You can buy these funds through the web, through Index Funds Advisors

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). You have to invest a minimum of 100K, and theycharge you a 1 percent fee though. I created my own small/micro cap value diversified portfolio of 28 stocks of undervalued companies with relatively strong earnings record. Buying these stocks cost $224 (through Fidelity), and re- balancing periodically the portfolio may add about 100 bucks a year. The portfolio composition is available at

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(files section).

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Will Trice 19 years ago

This may be the source of our difference of opinion, but...

I think the consensus of this group is that your asset allocation should be considered across all your assets, regardless of account type (some have extended that to include your home and even your job [human capital]). Of course, I am NOT suggesting that short term funds should be kept in a tax advantaged account. My point was that if the OP needs $10,000 to satisfy his allocation and already has $50,000 set aside in a savings account, why keep $10,000 in cash in a retirement account? It seems that if you look at his portfolio as a whole (i.e. including the $50,000 in savings), then his savings will serve as a volatility damper without adding another $10,000 lead weight to his return. When he consumes the $50,000, he could shift assets into cash in his retirement accounts. All this of course assumes that he a) has an allocation that demands a "cash" position, and b) has appropriate instruments available for that short-term cash. In other words, if he needs CD-like return for his allocation, then a CD or other vehicle of short enough duration to meet his short-term needs is available.

-Will

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Andrew Koenig 19 years ago

I believe that ifa.com is the website of a financial advisor, so what you're saying doesn't contradict what I said.

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dan 19 years ago

Thanks, I'm going to review all the allocation tools. I'm wondering if I should just pay someone to sort it all out as im getting a little overwhelmed ;)

What are the downsides to the overlap?

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jIM 19 years ago

Do you know why you own each of those 33 funds? Many of them have similar holdings. (How many of those funds have a top 10 position in Microsoft, for example?). If you ask the right questions and are willing to read about 6 hours of material, I think you could come up with allocation yourself (and help from others).

The second step of implementing can be done over time. Do you have a net "gain" or "loss" in the taxable account? IRAs and 401ks do not matter. But a large gain in the taxable account might cause some recomendations to be altered (as any sale would get taxed).

questions to ask- how long do you have until retirement? how much money have you saved for retirement? how much money will you need at retirement? quick calculation- take your current salary and divide by .04. That is a crude estimate at best, but a place to start. how much stocks and bonds do you feel comfortable holding? Answers might be 100-0, 80-20, 60-40 or something else (the numbers are percentages of stocks-bonds). if you saw your account balance decrease by 10% in a quarter, what would you do? if you saw your account balance decrease by 25% in a quarter, what would you do? find a web site you like (such as

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"Investment guides and tools link) and use "retirement planning"link. Go through the calculators or ask questions as appropriate.

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joetaxpayer 19 years ago

Overlap obfuscates the true allocations. Let's say the particular funds were all just .1% expense. Would having a Fidelity and a Vanguard large cap fund be so terrible? Maybe not, but what does it gain you? Where I really wondered was on the 4 in 1 fund, and a couple others, all from Fidelity, where the overlap was enough so that you couldn't just look at funds at say "I have X% in this category". If the ideal timing for reallocation is annually, your current number of funds would take twice to three times the effort to reallocate as compared to the 12 or so funds that can have you well diversified.

As others have stated, you may want to shift over time so the higher dividend funds are in post tax accounts, along with foreign. As Elle shared today, the foreign tax issue winds up costing you if in a tax sheltered account. Same with dividends which are favored in post tax accounts, but ordinary income when coming out of the pre-tax accounts. JOE

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Elle 19 years ago

snip

The above is in the vein of my thoughts: Tracking so many funds takes so much effort, and I bet with no perceptible advantage, that it will pay to consolidate.

Remember my caveat that evidently the dividends of foreign funds or stocks held in a taxable account may not have the favorable treatment that domestic stocks and funds do. I am not selling the one stock (Honda, or HMC) that I have because someone (Japan) is taking 7% of every dividend it pays, but I am mulling it all over. 'Sides, the stock has appreciated greatly in the eight months I have held it. This, with Ford and General Motors looking more tortured everyday, always disuades one from selling /too/ quickly.

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darkness39 19 years ago

I'd half to check the index definition, but from memory (I am anchored a bit here by the UK, where 60% of the index is 20 stocks) the total market index is about 70% of so SP500, 20% or so mid cap, 10% small cap.

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