[USER]

Switching to a risk parity portfolio. What’s the best way to go about selling what investments you own within different accounts (ira va Roth vs brokerage).

I know there’s certain accounts that do better with dividends / gold vs equities etc. Is it worth the added headache dividing up by account type?

Not sure how important it is to do this. I want to optimize but not if it makes it behaviorally difficult to reset % monthly / quarterly. Already feel a bit overwhelmed but know it’s just a hurdle that’ll get easier once we do the leg work setting up.

From my understanding there’s no penalty to switching within retirement accounts. & Most people suggest keep the same % within each account just to make the math simple.

My biggest worry is our brokerage account ($200k). It has 5 different tickers(VTSAX, VSIAX, VIGAX, VFWAX, VEMAX). I can leave as is for now / not even bother touching if it makes sense until we actually RE and have a lower tax bracket.

Our state has 11% rate which is fun and worth keeping in mind.

Example of asset classes we’re looking to focus on: Large cap growth / Small cap growth / Long term treasuries / REIT / Gold

Lastly is it best to do this over time as we input more money (still working for a few more years and add somewhere between $100-150k/yr for perspective) or get it over with now.

Not looking to time the market more so best practice on setting up.

Open to any additional suggestions on navigating this beast of a project.

[Matt]

Leave your brokerage alone for now. As you liquidate (possibly to 0 capital gains tax each year), just sell off the undesired. You can reshuffle all you want within your retirement accounts.

The most aggressive growth equities go into Roth, least growth… gold, bonds, etc, go into Traditional.

Then revisit brokerage tax optimization/rebalancing. $200k balance there isn’t all that much. If you’re still contributing to Brokerage, just buy your desired funds there as you go.

[Rick]

“I live in a 12% tax state which is fun”. Ok that made me laugh. You have a good sense of humor about it.

Taxes aside for a moment, rebalancing is best done from asset classes near all time highs. Usually into asset classes at recent lows but that could also mean into asset classes you don’t yet own.

I personally have been fine with specific asset location instead of same/similar mix in each account. Example – I try to hold much of my REITs in IRAs. But I do admit that at times creates rebalancing challenges.

My taxes as so low though it really ends on not mattering that much. So, I would let that be your deciding factor.

If you strongly believe you will have lowish taxes in retirement, then choose convenience over perfect.

One question for you, for some reason buried down here when I should have led with it, are you going for growth variants of your chosen equity classes over blend or value for a reason?

Most risk parity portfolios lean blend and value. Make sure your portfolio analyses are using growth so you see the differences over the long run.

Not right vs wrong just make sure you are looking at data output that matches your exact choices.

[Amy]

You’re correct that you can rebalance within retirement accounts without tax consequences. You are taxed only when you take a distribution from a retirement account.

You can leave the brokerage account as-is and categorize those funds as LCB, SCV and alternatives.

The ex-US large-cap fund can be lumped in with US large-cap since international large-cap behaves much the same as US large-cap.

You can look for opportunities to consolidate your brokerage account via tax loss harvesting.

There will likely be opportunities given recent trends in Washington.

If you can manage it, you should consider all your various accounts as one portfolio and locate assets for tax efficiency.

For example, holding long-term bonds in retirement accounts and having Roth accounts hold only equities. Bogleheads have a good guide for where assets are best located.

Building out a spreadsheet can make this a lot easier.

you wrote you’re looking at small-cap growth. I think that’s probably a typo if you’re trying to align your portfolio with risk parity. I assume you meant small-cap value.

If it’s not a typo, you want to avoid SCG as that asset class reduces the benefit of holding small-caps.

When to transition your portfolio is a question of how close you are to having saved enough.

If you’re within 5-6 years, it’s best to transition all at once and soon since a crash now may affect your plans to retire in a few years.

If you’re further away, you can transition more slowly. Adding new money to the assets that are below their target allocation is a good way to transition slowly.

You can also turn off DRIP and manually reinvest dividends as part of rebalancing.

[Author]

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