The Whole Portfolio
Question: My wife and I each have retirement (401K, Roth IRA) and non-retirement (joint brokerage, ESPP, REIT) investment accounts. I also have a beneficiary IRA setup from an inherited qualified annuity. My question is whether we should consider each account independently in terms of balancing the investments, or view the combined accounts as one big portfolio? For example, an aggressive overall retirement portfolio balanced by a conservative non-retirement portfolio? Or an aggressive 401K with a conservative Roth. We are in our mid-40’s and plan to retire in about twelve years. As we near retirement, we would re- balance things for a more conservative overall portfolio. Thanks, and we love your show! Pete, Golden Valley MN
Answer: This is an important question. A very common mistake in allocating your investment money is not looking at your portfolio as a whole. The reason is just what you suggest: You may be more aggressive than you realize or more conservative than you want.
Here’s a hypothetical portfolio that makes the pojnt. Lets say a family has saved $100,000 in a 529 college savings plan and their child is off to college in just a few years. The asset allocation is 20% equity and 80% fixed income. The wife has another $100,000 in her retirement account, split into 75% equities and 25% bonds. The asset allocation in each account sounds about right on its own. But taken all together, the overall asset mix is 52% fixed income and 48% equity. Is that the right mix for the household? It’s probably too conservative.
So, yes, every once in awhile strip away all the product names (401K, IRA, 529, and the like) and see what is the overall asset allocation for the household. It’s a good discpline.
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