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Asset Allocation Adjustment 4/2016

Your asset allocation is the ratio of each specific investment in relation to the whole. Often people talk about being 80/20 in stocks/bonds, they are referring to their asset allocation. 80% of their money is held in stocks and 20% is held in bonds.

There are all sorts of assets besides the above one can have such as real estate, REIT, or peer-to-peer lending.

Some get quite fancy with their asset allocation based on their comfort level, experience and knowing something that I probably don’t.

I enjoy simplicity and based on my research I could get an extra 1-2% tops by optimizing my asset allocation. That extra 1-2% isn’t worth my time to sit there and do complex adjustments of my holdings.

I treat my holdings as two separate buckets. I have taxable holdings which are my after-tax moneys invested in a brokerage account and I have tax-deferred holdings invested in IRA’s, 401k’s etc.

I sat down with my financial adviser a few days ago and we agreed on an asset allocation of 90/10 in my tax-deferred accounts and 70/30 in my taxable accounts. The reason being I want to be a little more conservative in my taxables, which is the money I’ll be accessing first in my early retirement years.

I recently moved my 401k and Keogh from Charles Schwab to Vanguard. I rolled the money into an IRA and it has been sitting in a money market account the past few days. Today I sat down with my spreadsheet and figured out how to distribute the $209k in order to achieve my desired asset allocation.

I am not a fan of tedious work, but it only took me an hour to figure it out. My financial adviser would charge 95 basis points annually, which is 0.95% of my holdings. And I believe 85 points for anything over $500k. I am paying him a monthly fee at this point instead of the points (which is cheaper for me) but will likely switch to having him manage it in the future.

So, basically I didn’t have a good bond exposure, therefore I bought some vanguard bond funds in my IRA and added some international equities as well.

This should get me pretty close to my goal. And when various markets adjust I would move some money from one category to another to maintain my ideal asset allocation. This helps me buy funds which are depreciated and sell out of funds which have gone up in value.

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