Happy Valentine’s Day! Since a lot of personal finance bloggers are writing about frugal tips to celebrate the day, I thought I’d do something different and talk about asset allocation. Romantic, right?
Just over a year ago, I wrote this post that explains why I don’t max out my 401(k), even though it’s widely touted in the personal finance community as a must when working towards financial independence. Physician on FIRE recently wrote a post that discusses his allocation by account type, and how much each is really worth in today’s dollars. Reading his post certainly helped validate my decision to invest the way I’ve chosen to. Freedom is Groovy wrote a follow-up post that is also well worth your time. So in today’s post, I thought I’d do something similar to PoF, and show you a breakout of my assets.
Tax Deferred: 53%
This consists of my 401(k) with my current employer and my 401(k) rollover IRA. Every time I’ve left a company, I roll over the 401(k) to the IRA. As you can see, this makes up the largest bucket within my assets. I currently contribute 10% of my salary and receive a 4% employer match. I hesitate to invest more than that since taxes will be due on this money when I retire.
Real Estate: 22%
This consists of my primary residency — a townhouse I’ve owned for almost 16 years. I’m not planning to invest in real estate or upgrade to a more expensive house, so this percentage will decline over the years. I wanted to include it for two reasons: 1. To illustrate that a majority of my assets is held in investments and 2. This is available in the event that I ever have to sell it.
Taxable Brokerage: 13%
This is where a majority of my money has been going over the last year and that will continue for the foreseeable future. I’m a fan of the fact that I can withdraw funds whenever I’d like and only have to pay taxes on any capital gains. This account will fund early retirement, if I decide to go that route.
Roth IRA: 11%
This is partially due to the low contribution limits ($5,500/year) and the fact that I’m not great at maxing it out. Going forward I plan to max out my contributions to help bump up the amount I can withdraw tax-free during retirement.
I currently don’t hold much in cash — really just enough to cover emergency expenses — but this will change over the next 10 years. I’m going to slowly increase my cash so that I have at least 2 years worth of expenses by the time I (possibly) retire in 10 years. I plan on doing this by automatically transferring a small amount each payday and also putting all future bonuses in a specific savings account.
I’ve decided that this is the best way to allocate my money given my goals, timeline, income, and tax bracket. How does your asset allocation look? What strategy have you decided to use?