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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#89 - Household Investment Allocation

Household Investment Allocation

HSA, 401k, 403b, IRA, Roth, etc. Within your household, it is likely someone owns one or many of these accounts.

Occasionally the default thought is I will manage each account separately. For example, if you want an investment allocation that is 50% Stocks and 50% Bonds you may put 50% Stocks and 50% Bonds in every account.

There are a few advantages to reviewing investment allocation on a household basis (assuming all accounts are for the same goal) instead of on an individual account basis.

First - Each account type has different tax characteristics. For example, one account may grow tax-free while another account grows tax-deferred (which means growth will likely be taxable income when withdrawn). Why does that matter? Many times it will make sense to invest in the asset with the greatest expectation of return in the account that grows tax-free and place the other assets in the account that grows tax-deferred. That way, you increase the tax-adjusted expected rate of return of your portfolio while still maintaining the desired investment allocation.

Second - Some accounts have limited investment options. For example, if husband and wife both have a 401k account and the desired allocation is 50% stocks and 50% bonds it may not make sense to have both accounts be allocated to 50% stocks and 50% bonds. For example, there may be a good inexpensive stock investment option in the husband’s 401k and a good inexpensive bond option in the wife’s 401k. Therefore, one could consider putting stocks in the husband’s 401k and bonds in the wife’s 401k.

Reviewing your investment allocation on a household basis can help increase the tax-adjusted return of your portfolio and lower the overall expense of the portfolio all while maintaining the desired allocation.

Quick Note: The federal income tax filing deadline is approaching - May 17th. There is still time to make HSA, Roth, and a few other account contributions. Please give me a call if you have any questions!


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