I'll take the time to remind folks, before you do any financial gymnastics, please consider the value. I've seen clients with $500k or so who "read an article" and trying to do needlessly complex allocation/location strategies where the reality is there's a few dollars difference, given their status. Very high net worth, sure, go for it, there's likely a big difference. But otherwise, know what you're getting for your efforts, and know what you're giving up. Even for simple advice like putting your fixed income in the IRA and your equities all in the brokerage. Some folks hear the advice to do 100% equities in Roth due to the tax-free growth, and forget or don't realize they'll be needing that money to succeed in their retirement plan, and have now exposed themselves to sequence risk.
Often a new client comes to me because their spouse had passed, and did all the financial driving, implementing needlessly complex strategies. I'm happy they found me, but I always think of the other 99.99% of other new widows/widowers out there that are now fed to the high-fee AUM advisors or annuity/IUL salespeople because they can't manage it on their own. As well, these strategies can be more difficult to manage as we age. Mistakes are very expensive, and often undo all the years of meticulous work. Any tools you use can easily be tripped up and give you financially hurtful and misleading results, as we've seen. This isn't a Pralana problem, as others have said. It's a reality problem.
Consider keeping things simple. Decide on an asset allocation and go with it. It makes life easy to monitor, easy to manage, easy to share with your spouse/partner. Make sure you have a monthly or semi-annual financial review where you discuss what you have, why you have it, and the (should be) simple housekeeping that needs to occur (infrequently). Remember, the best performing accounts are usually the ones that have been discovered after sitting idle for decades.
Stuart - I really appreciate your patient explanation of how the two different modes work and the modeling complexities! I *think* I get the gist of it now. I'm proposing to keep my model really simple and use Mode 2 with two asset classes and a overall AA. The divergence of the model from reality (maybe one more asset class worst case) will be irrelevant in the larger picture, and we'll be dynamically adjusting every year or two anyway.
@hines202 - Bill, what a *fantastically valuable* and great *reality-check* guidance post - should be a pinned one really! Over the past year, I've been personally making the journey to get out of the clutches of an AUM-annuity-salesman and simplifying (and understanding) my finances. Almost there to *exactly* what you suggest - a simple asset-allocation with very few index funds and diversification across taxable/tax-deferred. PRC has been super valuable to me to give the greenlight to our retirement plans. The Roth conversion analysis is merely tweaking at the margins so I'm not too concerned about some crazy degree of optimization! Thanks again!
@rrkaushik Another "simplify for the win" error I'm seeing a lot with new clients--people coming in with 2, 3, 4 IRAs each! It's hard to think of a good reason to have more than one IRA each. Consolidate. Simplify. Very rarely do you ever want to leave a trust as a beneficiary of an IRA (taxes, complexity). Also, very rarely do you ever want to *not* roll your old employer 401k into your own IRA (401ks generally have higher fees, fewer investment choices, and your old employer can move it to a new custodian any time they want). The fewer people between you and your money the better!
