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Question Headline:

Should I change my asset allocation strategy?

Question Body:

I am approaching 50 years old, single, and have about $2,000,000 in total assets ($1,000,000 in a 401(k), $500,000 in cash, and $500,000 in stocks). I don’t own a home but plan on buying one within the next couple of years. My monthly expenses are about $10,000 but if needed I could cut down to about $7,000. I have no debt. I am employed in a good position. Given all of this information, how well-positioned am I for the future? Should I be doing anything different with my asset allocation strategy?

My Answer:

One: Based on the information provided, I believe you are very well positioned for the future.

Two: Given the information provided I could not recommend an asset allocation for you. To determine the proper asset allocation (mix of stocks, bonds, & cash) for a client, I factor in goals, time horizon, and cash flows. It is unclear how soon you will be purchasing a home, or what price range that home will be. It is also unclear based on the info provided how much longer you intend to continue working.

Missing Information:

• When do you plan to stop working?

• How much are you currently saving and planning to save each year until retirement? What types of accounts are you doing this in, 401k, IRAs, taxable brokerage account, etc.?

• How is your 401k currently allocated?

• When do you expect to purchase a home?

• What price range will your home price be?

Hypothetical: If you were to start living off your accumulated assets today and require $100,000 (pre-tax) a year from your $2,000,000 nest egg, then somewhere in the range of a 60/40 – 75/25 mix of stocks/fixed income would give you the best probabilities of maintaining cash flows and growing the portfolio over the remainder of your life.

Lastly, based on the information you provided there may be financial planning opportunities to save/invest in more tax efficient ways. I assume that you are not eligible for direct Roth IRA contributions due to a “high income,” however you likely are eligible to make IRA contributions on a non-deductible basis and then convert that IRA into a Roth IRA. This strategy should be considered. You should also consider municipal bonds within taxable brokerage accounts.

– Wyatt Swartz

– Contributions by Bryant Goacher

– 6/25/2018