Re-balancing my investments: 2015 Roth IRA contribution edition

I set my 2014 investment allocations back in December 2013 and then left them alone, which went great!

As of 01/02/2015, my investments portfolio was worth ~$164,400. I decided to re-balance my investments now with this Roth IRA contribution and then I’ll re-evaluate things once I start the new job. That will likely be calculating what my new 401(k) contributions should go into and then re-balancing my overall portfolio when I make my 2016 (!) Roth IRA contribution and set my 2016 401(k) contributions.

(Note: when I wrote this post last year, I estimated that my end of year balance would be $156,000. It is $8,400 higher than that! Crazy!)

First, what are the balances in my various accounts?

  • $38,900 Roth IRA (with $5,500 new contribution)
  • $8,400 Old tax-deferred CDs
  • $10,200 Series I Savings Bonds
  • $15,300 Taxable account
  • $97,100 Now-old 401(k)
  • $169,900 Total investments

What is my asset allocation?

% Category Amount
27% Fixed income $45,873
36.5% International stocks $62,013
36.5% US stocks $62,013

My allocation has gotten itself to the following with the markets and contributions in 2014 (a tiny bit out of whack):

  • 27% Fixed income
  • 34% International stocks
  • 39% US stocks

And if I just added my 2015 Roth IRA contribution to total US stocks, my allocation would get a tiny bit more out of whack:

  • 25.8% Fixed income
  • 32.8% International stocks
  • 41.4% US stocks

At which point, US stocks are 4.9 percentage points higher than they should be, which warrants re-balancing in my 401(k) account at the same time. Last year, since I’d just re-balanced in November 2013 to make my 2013 Roth IRA contribution, I didn’t do any when I made my 2014 Roth IRA contribution and instead re-balanced with my 401(k) contributions over the course of the year.

If we follow my ordering from my post on tax-efficient investment placement, what does that ideal portfolio look like?

Steps

  1. (not necessary – all in S&P 500 index fund) My employer match to the company stock
  2. Series I Savings Bonds that already exist in taxable
  3. CDs that are already in my Roth IRA
  4. The remaining portion of my fixed income allocation to the stable value fund in my 401(k).
  5. (not necessary) As much of my remaining fixed income allocation to Total Bond Market in my Roth IRA as possible
  6. (not necessary) If my tax-advantaged balances weren’t enough for all the fixed income necessary, added $10,000 in Series I Savings Bonds (possibly early for future-proofing)
  7. (not necessary) Any other fixed income went to a tax-exempt bond fund in taxable.
  8. As much of my international allocation in taxable as it allowed (in the first few years, my entire taxable balance; in later years, the entire international allocation)
  9. Next, I added any of the remaining international allocation into my 401(k).
  10. The remaining 401(k) funds went to the S&P 500 index fund. Call this amount X.
  11. (X/0.8)-X is how much I put into the Extended Market index fund in my Roth IRA (minimum of $3,000).
  12. The remaining Roth IRA funds went to Total Stock Market.
  13. (not necessary) The remaining taxable funds went to Total Stock Market.

Ideal portfolio

Account Fund Current Ideal Difference
401(k) Stable value $25,300 $27,300 +$2,000
Taxable Total international stock index (admiral shares!) $15,300 $15,300 (same)
401(k) Total international stock index $40,400 $46,700 +$6,300
401(k) S&P 500 index $31,400 $23,100 -$8,300
Roth IRA Extended Market index fund $7,100 $5,800 -$1,300
Roth IRA Total Stock Market index fund (admiral shares!) $26,300 $33,100 +$6,800

Note that these numbers are all rounded, so they may be slightly off if you try to make calculations with them, but they should still illustrate my example sufficiently.

My portfolio is pretty simple right now: one taxable account, one 401(k), and one Roth IRA, with one fund in taxable, two in the Roth IRA, and three in the 401(k). My re-balancing here is really just adding new money to the Total Stock Market index fund in my Roth IRA and then adding some money to fixed income and international stocks in my 401(k).

I performed a few transactions to accomplish this:

  1. Contribute $5,500 to the money market account in my Traditional IRA.
  2. Convert the $5,500 from my Traditional IRA into the total stock market index fund in my Roth IRA once the funds settle.
  3. In my Roth IRA, exchange $1,300 from the extended market index fund into the total stock market index fund.
  4. In my 401(k), exchange $8,300 from the S&P 500 index fund to $2,000 in the stable value fund and $6,300 in the international stock index fund.

D’oh! I did all of these transactions and then realized while writing this post that I needed to set it to only use my Traditional 401(k) portion to do the exchange, so it’s trying to do the re-allocation using all sources (also my Roth 401(k) and employer matching money), which I have conveniently set to only have one fund in those “accounts”. Oops! I called the plan administrator on Monday and they couldn’t do anything to fix the transaction. So my asset allocation is on track, but my accounts are a tiny bit more complicated than I like them to be. Oh well.

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8 thoughts on “Re-balancing my investments: 2015 Roth IRA contribution edition

  1. How’d you pick your asset allocation? Is there a reason why your fixed income portion is so high?

    • I picked age in fixed income + 1 percentage point for each multiple of $100,000 saved. I’ve read that it’s better to have a higher allocation to fixed income when you’re younger and you don’t know how you’ll react in a market where stocks drop a lot. My plan at the moment is to stick to this allocation until I reach 30% in fixed income and then stay there for a while, probably until age 35-40.

  2. Bravo Girl! It’s awesome to see other young females saving and investing wisely!
    I am also a big believer in the same practices! Ever read “The Richest Man In Babylon”
    by George Clason? It’s awesome! You are definitely on the right path!
    Blessings!

  3. I’m not able to distinguish between the traditional and roth portion of my 401k. It’s all one allocation and I’m stuck with it.

    • That’s lame. It’s mostly annoying because I put most of my contributions into the pre-tax portion, so the Roth is tiny – like 4% of the account – and I was trying to keep it in one fund. I’m hopeful that I’ll be able to roll the Roth portion into my Roth IRA when I roll the old 401(k) account somewhere.

  4. Leigh, I just found your blog a couple of weeks ago and have been trying to catch up with all of your posts.

    Kind of tossing around the idea of starting my own blog. (have religiously kept all data for the last 8-10 years or so)

    I love your discipline on expenses, My wife and I arent bad, but we are a little sloppy especially when compared to your discipline. Reading thru your budgets/results and analysis there are some things you do I would like to incorporate (monthly/yearly expense comparison/review).

    On the investing side, are you calling your fixed income assets bonds? or some sort of combination of bonds/and CDS? Do you have a targeted length of maturity? I understand that investing wisdom is that bonds historically have a lower volatility than equities. And traditional theory is to have a fairly large percent of assets in fixed securities.

    My concern is twofold. 1) you are young, equities have a higher historic return. And over the long term the market has performed better than bonds. 2) Bonds are at an all time high. Several Euro sovereign bonds are trading at negative interest rates, and even US 10Y treasuries are a touch over 2%. If we start to get inflation, are you worried that you will take a loss in your bonds and that will outweigh any return?

    Maybe I missed your discussion on them. Are your treasuries in a non ira/non401K account? If so have you thought about taking the savings bonds and rolling them into additional prepayments on your mortgage? You would get a guaranteed return from having less interest on the mortgage, and having a paid off property seems more in line with how you seem to run your other finances. (also you talked a bit about your mortgage a couple of years ago in your blog)

    Your site is fantastic, I hope you dont mind if I incorporate some of the things you do on your blog (if I ever publish one)

    • Hi George, thanks for stopping by! I’ve kept my own data religiously since mid 2004. Ever since I started doing monthly expense reviews on my blog, I’ve gone to only doing quarterly self-journaled expense check-ups.

      My fixed income assets are a mix of CDs, bond index funds, savings bonds, and stable value funds. I don’t have a targeted length of maturity. My bonds are mostly kept in my 401(k), so I’m limited in my selection with what my 401(k) offers. The savings bonds were bought directly from TreasuryDirect and are not in a tax advantaged account. It’s sort of like a secondary emergency fund that is a bit harder to get at. I may use them + my savings account to pay off the mortgage when it gets low enough, but we’ll see.

      My plan so far has been age in bonds, especially with how risk averse I have been for most of my life. I’m strongly considering stopping that when I get to 30% fixed income / 70% stocks and staying at 30/70 for a few years.

      I’m not really worried about my portfolio at all. I have no need to draw on it as I have strong cash flow and reserves outside of my investment portfolio. If it goes up, that’s cool; if it goes down, that’s fine too.

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