Financial Portfolio Allocation: Graduating Beyond Target Retirement Funds

Starting with a high savings rate and Target Retirement funds is great for beginners, but as the portfolio grows, a more personalized approach is beneficial.

### Transitioning from Target Retirement Funds to Customized Portfolio Allocation
* 🎯  Target retirement funds are a great starting point for early investors, as they automatically adjust asset allocation based on the **target date**.
* 💼  As your portfolio grows and your financial situation becomes more complex, it may be time to move beyond **target retirement funds**.
* 🎓  Graduating to **customized portfolio allocation** typically occurs around **Step 7** of the Financial Order of Operations.
* 🏦  Step 7 involves optimizing after-tax, tax-free, and tax-deferred accounts, considering factors like **tax location** and **asset types**.
* 💰  For example, you might hold **conservative assets in tax-deferred accounts**, **growth assets in tax-free accounts**, and a **mix of assets in after-tax brokerage accounts**.
* 📈  This strategy optimizes **tax efficiency and liquidity** based on the **specific characteristics of each account type**.
* 🤝  Seeking professional help can be beneficial when transitioning to a **customized portfolio allocation**, especially as your financial situation becomes **more complex**.
* 🌟 " Complexity finds you success creates complexity." This quote highlights how financial success often leads to the need for **more sophisticated strategies**.

[Music] Typhoon Season has a question. And yes, he capitalized Foo. You get it, cuz F. I get it. I get. Just make sure you got. He was like, okay, okay, okay, okay. Typhoon Season's question says, I'm 34, and I'm on Step 8 of the Financial Order of Operations or the Food Nice. So far, I focused my savings rate and only invested in index Target Retirement funds. But how do I know when I need to change my allocation? So, it sounds like Typhoon has been listening to us for a while because one of the things that we say is that when you're early on in your financial journey, your savings rate is exponentially more important than your rate of return, meaning you don't want to lose a lot of mental calories thinking about how you're spreading out your dollars early on. We think that a great solution for folks who are just starting to build our Target Retirement funds because all you have to do is answer two questions: how much money can I save and then when do I think I might need that.

money. So if I'm someone who's young, I might do a Target retirement fund out to 2060 or 2065, and that might be a great solution where all I've got to do is start dumping money into that fund, and it's going to naturally allocate for me over time. It's going to take a lot of the mental energy that it would require of me to allocate that portfolio. So that's great for folks who are starting out, but we are of the opinion that that's a great generalized solution. As your portfolio gets larger and as your unique financial situation gets more nuanced, it might make sense for you to move from more of a generalized solution to more of a specific unique solution to you. And I think that's the point where most people graduate past Target retirement funds. Yeah, it's typically step seven in the hyper accumulation phase. I love that we get to go a little deeper on what step seven is because what I like is that a lot of steps 1 through six is to cover the

basics of your cash reserves paying off the debt, and then maximizing all the tax benefits that our government is incentivized for you to think for the future. But when you get to step seven, now you're saying hey, how am I actually going to use this money? And you might find out if you're leaving the workforce early or you want to have access and buy your time even sooner, that you're going to need more money in after-tax accounts. Or maybe you realize hey, when you're in Step seven, you're like wow, I really maximized steps five and six, so I have all these tax-free assets, I have all these tax-deferred assets, but I don't have any after-tax assets in a brokerage account, so maybe I need to reprioritize that. It's very common though when you start thinking about those three buckets: the after-tax, the tax-free, and the tax-deferred, you're going to start looking at these accounts, and then you're going to say wait a minute, now I can see why tax location.

for my different account structures as well as what I hold in each of those account structures matters because in the beginning you know you're it's it's exactly what Bo said your savings rate is so much more important than what you're even choosing to invest in but you will get to this critical mass or this bowling point where the assets are now big enough that you're going to say well I have close to seven figures in retirement accounts because that is in in your 40s that is the account that typically crosses into seven-figure status for most millionaires is those 401ks the 403bs and you're going to say you know what I ought to do let's hold my conservative stuff in that because bonds already pay ordinary income taxes let's take advantage but you know what I know that I want my Roth assets let's stick it to the government legally by letting those be growth assets that I can grow and maximize all that you know um compounding growth over decades so let's put in something that's probably

an equity index type fund, or something like that, so you actually are getting the market instead of trying to beat the market. But then you're going to think about your tax book account. Well, this is where I need my liquidity, so I have emergency reserves, but I also have opportunity Capital here. But then you say, but I know Dividends are taxed in a favorable way. I know capital gains are taxed in a favorable way. So I'm going to have a mix of several different types of Investments and assets there. This is the why you will realize, hey, yeah, it's time to go beyond what I was doing with index Target retirement funds. You've graduated Beyond it. And this is also when I think remember how I say that complexity finds you success creates complexity an example that this is a perfect example of that. So see if you can self-assess and figure out what you need to do. But if you can't, there's nothing wrong once you graduate from the do-it-yourself side to actually bringing in professional help to help you maximize.

because you've only had one retirement or planning for one retirement why not bring somebody who's done this hundreds of times so that you can kind of protect yourself from the blind spots and then optimize every situation that you that's provided to you and kudos to you tyon 30 four step eight that's awesome certainly uh without knowing the numbers certainly doing the right things at the right time your future self will likely thank you for that

When Should I Change Up My Investment Allocation?

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Reevaluating Investment Allocations for Financial Growth

Typhoon Season, 34, is questioning when to change his investment allocation after focusing on savings rate and index Target Retirement funds.

In the early stages of the financial journey, the savings rate is more crucial than the rate of return, making Target Retirement funds a great starting option.

As the portfolio grows and the financial situation becomes more complex, a more personalized allocation strategy beyond Target retirement funds may be necessary.

Maximizing Tax Benefits and Asset Allocation for Future Financial Planning

Cash reserves should be used to pay off debt before maximizing tax benefits for the future.

As your assets grow, it's important to prioritize allocation across after-tax, tax-free, and tax-deferred accounts.

When reaching a substantial asset level, consider holding conservative assets in retirement accounts and prioritize growth assets in Roth accounts for maximum compounding growth.

Diversifying Your Investment Portfolio for Financial Success

Diversifying your investments helps you benefit from the market and tax advantages, while also providing liquidity and opportunity capital.

Graduating beyond index target retirement funds allows for a mix of different investment types, potentially increasing complexity but also success.

Seeking professional help to maximize your portfolio is a valid step after outgrowing the do-it-yourself approach.

The Benefits of Having a Retirement Planning Expert

Bringing in someone with extensive retirement planning experience can help you identify and optimize opportunities while protecting you from potential blind spots.

By seeking the right guidance, you can make informed decisions that your future self will thank you for.

Tyon 30's approach to retirement planning is commendable and can lead to positive outcomes in the long run.