Finance · Investments

Allocation by Account Type

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.

Cash: 1%

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?


7 thoughts on “Allocation by Account Type

  1. Thanks for the breakdown! I’m also not maxing out my retirement, but that’s mostly because we’re still getting out of debt. It makes more sense for us to pump funds into debt payoff right now than into more investments. However, Mr. Picky Pincher has a 401k and I have a Roth IRA, so we do make sure to invest what we can each month. After we get out of debt we’ll be able to get into stocks, funds, etc.

    1. Once the debt is gone, your savings will skyrocket. It definitely helps that you’re already used to allocating that money to something other than lifestyle inflation.

  2. Love, love, love seeing how other people handle their money. But I guess that’s no surprise 🙂 I currently do the 401(k) maxing out thing. We’re also investing heavily in our taxable brokerage account to fund the purchase of rental properties. Aside from that, we’re also paying off our mortgage. A big part of our plan is to produce passive income through rentals to fund our early retirement. Woot woot! If we decided to go the non-rental route, we would also be exhausting all tax-deferred retirement accounts.

    1. I love seeing it too 🙂 The basics of FIRE are universal (e.g. spend much less than you earn) but I love seeing the various ways people are handling the specifics. I worry a lot about future tax rates and having enough to fund 10 years of ER, otherwise I’d definitely max out my 401k. Who knows…this may change as the years go by…

    1. I also just decreased my 401k contributions so that it’s only enough for the match. Future taxes and RMD has me worried. I’d rather put that money in my taxable Brokerage account instead.

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