I have a 401(k), a Roth IRA and taxable investments. Should I completely diversify all accounts individually? That would be a lot of funds. Also, should both partners in a marriage have separately diversified accounts?Tish Rankin
Juggling all your investments can be as tough as keeping up with three kids, two dogs, a cat, a hamster and a parakeet. Oh, and your spouse.
Ultimately, you're the only person who can decide how to make your life more manageable. Maybe you send the kids away for the summer. Maybe you decide to leave instead.
The same thinking applies to investing. You should organize your financial life in a way that makes it easy for you to manage. No financial planner, broker or adviser with five degrees can tell you exactly how to arrange your investments.
You can have a separate asset allocation for each investment account and retirement vehicle if that set-up is right for you. Or you can look at all your investments as a whole, using different accounts to hold different funds. Which arrangement suits you? It all depends on your behavior and appetites.
After all, a financial plan is just like a diet. If you can't stick to it, it's not going to do any good.
Too Much Work
But trying to manage and track many different allocations might be more trouble than it's worth. Coming up with one broad mix for all your money might be the better of the two choices.
Reader Tish Rankin, who sent in this question, raises one important concern. When every investment account is diversified with its own tidy asset allocation, you could wind up owning way too many mutual funds. You don't need to own more than 10 actively managed funds.
Over that number, you'll probably be so diversified that your portfolio looks like one giant, expensive index fund. And with too much diversification, you could also lose any possibility of outperforming. And tracking all those funds could turn into a chronic headache too.
You can also achieve greater economies of scale by investing your assets in larger pieces and in fewer funds. For example, some of the Vanguard funds have an Admiral share class, which carries a lower expense ratio. If you put $250,000 in a fund that has Admiral shares, you'll pay less to own that fund in the long run.
And by using a single allocation for all your assets, you can use tax-deferred accounts, like IRAs and 401(k) plans, to shelter less tax-efficient funds and securities. Investments that produce a lot of dividends and capital gains are better held in those retirement vehicles. Since broad index funds are typically tax-efficient, you can own those in a regular investment account. Meanwhile, a fund run by an aggressive manager who likes to trade a lot is probably better off in a retirement plan.
If you've divvied up each account between stocks, bonds and cash, you might wind up with tax-efficient instruments in your retirement accounts and vice versa.
Lastly, one allocation model might help you avoid investment overlap. The more funds you own, the greater the likelihood you'll own a lot of the same stocks. With a smaller number of funds, it should be easier to keep track of exactly what you own through those funds. And you won't wind up with shares of
in each of your accounts.
One sweeping asset allocation for all of your money, including your spouse's investments, probably makes more sense. And it's pretty easy to pull off.
Where Do You Want to Go?
First, make a list of all your objectives and goals -- from the kids' college education to your second home at the beach -- and how long it will be before you need all the money to meet these goals. To keep it simple, you can look at your situation as long term vs. short term. For money that you'll need in five years or less, you shouldn't have any of it in stocks. If you have 10 years or more to invest, you can be more aggressive with your investments.
It comes down to where you should take more risk and less risk. Stocks are riskier than bonds. Money that you can't lose should be in bonds and cash. Yes, that's a simplistic explanation of asset allocation, but it's a good start.
And these days you can find myriad places on the Internet to track your entire portfolio, from
And anything that makes investing easier is a blessing, especially in this market.
In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to