Monday, November 28, 2005

My Current Asset Allocation

Keeping in mind that every individual must tailor an asset allocation plan to his or her own specific circumstances, I nevertheless felt that readers might be interested, and to some degree, entitled to have me reveal my asset allocation plan.

My portfolio is divided 50% equity/50% fixed income. Wherever possible, my asset classes are either indexed, tax-managed, or defined asset class funds. Without further ado, my current Asset Allocation Plan includes the following asset classes:


Table 1. Asset Allocation
Asset Class
Portfolio Allocation
US Market
8%
US Value
6%
US Small
5%
US Small Value
6%
US Realty
6%
International EAFE
6%
International Value
3%
International Small
3%
Emerging Markets
3%
Gold
4%
Real Bonds
30%
Short Bonds
20%



My Asset Location consists of the following account structures:

Table 2. Accounts
Account
Portfolio Allocation
Taxable Account
33%
Roth IRA
25%
Traditional IRA
25%
SIMPLE IRA
2%
Variable Annuity
15%


My annual invesment contribution flows into each asset location as follows:

Table 3. Accounts
Account
Portfolio Allocation
Taxable Account
21%
Roth IRA
36%
Traditional IRA
43%
SIMPLE IRA
0%
Variable Annuity
0%



Each year I execute a trustee to trustee transfer of SIMPLE IRA asset balances to my Traditional IRA. (This is why my annual investment contribution to the SIMPLE IRA is entered as 0%; the contribution is registered in the Traditional IRA.)

The taxable account consists of my Total Market allocation, as well as tax-managed allocations in Small Cap and International EAFE allocations. I also hold Emerging Market and Gold allocations in this account. Fixed allocations consist of real bonds (I bonds) and a limited term tax exempt fund. For this account, I redirect all dividend and capital gains distributions to my cash reserves (a treasury money fund). Redirection of dividends allows me to more effectively rebalance asset classes in a tax-efficient manner, as well as simplifying tax accounting.

The Roth IRA contains my allocations to Value, Small Value, International Value, and International Small allocations. For rebalancing purposes I also hold a small allocation to an inflation-indexed bond fund in this account.

The Traditional IRA is allocated to inflation-indexed bonds. The SIMPLE IRA plan fiduciary is a high cost, scandal plagued load fund group, so I hold my plan accumulations in the fund group's no-load money fund awaiting my annual transfers to my IRA.

The no-load, low-cost, no surrender fee Variable Annuity Account is allocated among equity REITS and short term investment grade bonds.

6 comments:

Joe Berenguer said...
This comment has been removed by a blog administrator.
Larry Nusbaum said...

MY ASSET ALLOCATION MODEL FOR GROWTH & INCOME:

To be used when the market(s) are trading above the 200 DMA:
(and, to manage your 401K. Do not buy company stock in your 401k)


+ Large Cap Stock Funds - Growth, Value and Blend: 10%
+ Mid Cap Stock Funds - Growth, Value and Blend: 10%
+ Small Cap Stock Funds - Growth, Value and Blend: 20%
+ International Stock & Bond Funds (Global): 20%
+ Real Estate Funds: 10%
+ Intermediate-term Bond Funds: 10%
+ Short-term Bonds Funds: 10%
+ Commodities and Natural Resources Funds: 10%

makingourway said...

Barry,

it would be great to hear an update from you. I assume the asset allocation model won't change much once you've set it.
How did things go with the 401k?
Have you decided to change where you put various assets?

Regards,
makingourway
www.makingourwayblog.com

makingourway said...

Barry,
I have a question for you...when you do the annual transfer from your simple to your traditional IRA - does the transfer act as a rollover - i.e. is the simple ira account closed when you do the rollover - i have a friend in a similar situation - as is my wife - i'm wondering how to move the assets out of a bad employer 401k without closing the employer 401k which is needed for future contributions.

Thanks,
makingourway

Barry Barnitz said...

Hi:

To clarify the transfer procedures. The transfer is known as a trustee-to trustee transfer because I properly have the fiduciaries directly transfer assets. A rollover would occur if the assets were distributed to me personally and I sucessfully transferred them within 60 days to the new fiduciary. In a rollover the distributing firm is required by the IRS to withold 15 percent of the distribution for tax purposes. If one cannot come up with the 15 percentwitholding and deposit it into the new plan within 60 days, the witheld tax is considered a distribution and is subject to both income and early withdrawal penalty taxes. This explains why a trustee-to-trustee account transfer is almost always optimal.

While I transfer assets out of my employer plan each year, it is important to remember that my salary deferrals and employer matches are still made through the employer's fiduciary. This is why one must select a no-load fund within the employer plan in order to minimize transfer costs. In my case, the load fund AIM group offers a no-load, no redemption fee money market fund (all other funds are load funds). I accumulate my contributions in this money fund, until year end, when I transfer most of the balance to Vanguard (I leave a small residual in the money fund so I am not accessed the $10 annual maintainance fee AIM charges on a total withdrawal.

Pitbullshark said...

It's very helpful to see your allocation--thank you very much for that. I wonder, though, "post-bailout" and now that we are soon entering into a new federal administration in which "printing tons of money" seems to be the strategy, aren't you worried about the potential for fiat currency hyperinflation (such as what happened in France between the French Revolution and Napoleon)? With only 4% of your assets in gold, for example...you may have an entirely different point of view about this. I see that commentor Larry Nusbaum has 10% allocated to commodities and natural resources funds, which I believe is smart. (As for me, I've got 10% of my assets in gold, and think maybe I ought to double, or even triple that as a minimum.)