Should I include retirement funds in calculating my asset allocation?
Personally, I do asset allocation separately for personal investing and for retirement investing, as I the two have vastly different purposes and I have vastly different goals for each. YMMV depending on how you view your non-retirement investments, and how close you are to retirement. "You probably want to think about pools of money separately if they have separate time horizons or are otherwise not interchangeable. A classic example is your emergency fund (which has a potentially-immediate time horizon) vs. your retirement savings. The emergency fund would be all in cash or very short-term bonds, and would not count in your retirement asset allocation. Since the emergency fund usually has a capped value (a certain amount of money you want to have for emergencies) rather than a percentage of net worth value, this especially makes sense; you have to treat the emergency fund separately or you'd have to keep changing your asset allocation percentages as your net worth rises (hopefully) with respect to the capped emergency amount. Similarly, say you are saving for a car in 3 years; you'd probably invest that money very conservatively. Also, it could not go in tax-deferred retirement accounts, and when you buy the car the account will go to zero. So probably worth treating this separately. On the other hand, say you have some savings in tax-deferred retirement accounts and some in taxable accounts, but in both cases you're expecting to use the money for retirement. In that case, you have the same time horizon and goals, and it can pay to think about the taxable and nontaxable accounts as a whole. In particular you can use ""asset location"" (put less-tax-efficient assets in tax-deferred accounts). In this case maybe you would end up with mostly bonds in the tax-deferred accounts and mostly equities in the taxable accounts, for tax reasons; the asset allocation would only make sense considering all the accounts, since the taxable account would be too equity-heavy and the tax-deferred one too bond-heavy. There can be practical reasons to treat each account separately, too, though. For example if your broker has a convenient automatic rebalancing tool on their website, it probably only works within an account. Treating each account by itself would let you use the automatic rebalancing feature on the website, while a more complicated asset location strategy where you rebalance across multiple accounts might be too hard and in practice you wouldn't get around to it. Getting around to rebalancing could be more important than tax-motivated asset location. You could also take a keep-it-simple attitude: as long as your asset allocation is pretty balanced (say 40% bonds) and includes a cash allocation that would cover emergencies, you could just put all your money in one big portfolio, and think of it as a whole. If you have an emergency, withdraw from the cash allocation and then rebuild it over time; if you have a major purchase, you could redeem some bonds and then rebuild the bond portion over time. (When I say ""over time"" I'm thinking you might start putting new contributions into the now-underallocated assets, or you might dollar-cost-average back into them by selling bits of the now-overallocated assets.) Anyway there's no absolute rule, it depends on what's simple enough to be manageable for you in practice, and what separate shorter-horizon investing goals you have in addition to retirement. You can always make things complex but remember that a simple plan that happens in real life is better than a complex plan you don't keep up with in practice (or a complex plan that takes away from activities you'd enjoy more)." I'd imagine that it's a small portion of the population that can have much of both. If one is saving a decent amount for retirement, say 10-15%, they aren't likely to have much else, aside from the house if included. For example, when I look at my 'pie chart' I get Retirement 72%, House 22%, everything else 6%.  Specific to your question, emergency funds should be just that, accessible for urgent matters, other short term needs, such as car fund, big TV fund, vacation, etc, also in non-risky cash (i.e. money funds CDs, etc) and the rest invested long term. The short need money isn't part of the long term asset allocation, to be specific. "I separate them out, simply because they're for different purposes, with different goals and time-frames, and combining them may mask hidden problems in either the retirement account or the regular account. Consider an example: A young investor has been working on their retirement planning for a few years now, and has a modest amount of retirement savings (say $15,000) allocated carefully according to one of the usually recommended schemes. A majority exposure to large cap U.S. stocks, with smaller exposures to small cap, international and bond markets. Years before however, they mad an essentially emotional investment in a struggling manufacturer of niche personal computers, which then enjoyed something of a renaissance and a staggering growth in shareholder value. Lets say their current holdings in this company now represent $50,000. Combining them, their portfolio is dominated by large cap U.S. equities to such an extent that the only way to rebalance their portfolio is to pour money into bonds and the international market for years on end. This utterly changes the risk profile of their retirement account. At the same time, if we switch the account balances, the investor might be reassured that their asset allocation is fine and diversified, even though the assets they have access to before retirement are entirely in a single risky stock. In neither case is the investor well served by combining their funds when figuring out their allocation - especially as the ""goal"" allocations may very well be different."
"As you alluded to in your question, there is not one answer that will be true for all mutual funds.  In fact, I would argue the question is not specific to mutual funds but can be applied to almost anyone who must make an investment decision: a mutual fund manager, hedge fund manager, or an individual investor. Even though money going into a company 401(k) retirement savings plan is typically automatically allocated to different funds as we have specified, this is generally not the case for other investment accounts. For example, I also have a Roth IRA in which I have some money from each paycheck direct deposited and it's up to me to decide whether to leave that money in cash or to invest it somewhere else.  Every time you invest more money into a mutual fund, the fund manager has the same decision to make. There are two commonly used mutual fund figures that relate to your question: turnover rate, and cash reserves. Turnover rate measures the percent of a fund's portfolio that changes every year.  For example, a turnover rate of 100% indicates that a fund replaces every asset it held at the beginning of the year with something else at the end of the year – funds with turnover rates greater than 100% average a holding period for a given asset of less than one year, and funds with turnover rates less than 100% average a holding period for a given asset of more than one year. Cash reserves simply measure the amount of money funds choose to keep as cash instead of investing in other assets. Another important distinction to make is between actively managed funds and passively managed funds. Passively managed funds are often referred to as ""index funds"" and have as their goal only to match the returns of a given index or some other benchmark.  Actively managed funds on the other hand try to beat the market by exploiting so-called market inefficiencies; e.g. buying undervalued assets, selling overvalued assets, ""timing"" the market, etc. To answer your question for a specific fund, I would encourage you to look at the fund's prospectus. I take as one example of a passively managed fund the Vanguard 500 Index Fund (VFINX), a mutual fund that was created to track the S&P 500.  In its prospectus, the fund states that, ""to track its target index as closely as possible, the Fund attempts to remain fully invested in stocks"". Furthermore, the prospectus states that ""the fund's daily cash balance may be invested in one or more Vanguard CMT Funds, which are very low-cost money market funds.""  Therefore, we would expect both this fund's turnover rate and cash reserves to be extremely low. When we look at its portfolio composition, we see this is true – it is currently at a 4.8% turnover rate and holds 0.0% in short term reserves.  Therefore, we can assume this fund is regularly purchasing shares (similar to a dollar cost averaging strategy) instead of holding on to cash and purchasing shares together at a specific time. For actively managed funds, the picture will tend to look a little different.  For example, if we look at the Magellan Fund's portfolio composition, we can see it has a turnover rate of 42%, and holds around .95% in cash/short term reserves.  In this case, we can safely guess that trading activity may not be as regular as a passively managed fund, as an active manager attempts to time the market.  You may find mutual funds that have much higher cash reserves – perhaps 10% or even more. Granted, it is impossible to know the exact trading strategy of a mutual fund, and for good reason – if we knew for example, that a fund purchases shares every day at 2:30PM in order to realign with the S&P 500, then sellers of S&P components could up the prices at that time to exploit the mutual fund's trade strategy.  Large traders are constantly trying to find ways to conceal their actual trading activity in order to avoid these exact problems. Finally, I feel obligated to note that it is important to keep in mind that trade frequency is linked to transactions costs – in general, the more frequently an investment manager (whether it be you or a mutual fund manager) executes trades, the more that manager will lose in transactions costs." My thoughts are your retirement investing priorities should be as follows: So in your case I would not put any money into your 401k until you have maxed out your Roth IRA. "In general, I'd try to keep things as simple as possible. If your plan is to have a three-fund portfolio (like Total Market, Total International, and Bond), and keep those three funds in general, then having it separated now and adding them all as you invest more is fine. (And upgrade to Admiral Shares once you hit the threshold for it.) Likewise, just putting it all into Total Market as suggested in another answer, or into something like a Target Retirement fund, is just fine too for that amount. While I'm all in favor of as low expense ratios as possible, and it's the kind of question I might have worried about myself not that long ago, look at the actual dollar amount here. You're comparing 0.04% to 0.14% on $10,000. That 0.1% difference is $10 per year. Any amount of market fluctuation, or buying on an ""up"" day or selling on a ""down"" day, is going to pretty much dwarf that amount. By the time that difference in expense ratios actually amounts to something that's worth worrying about, you should have enough to get Admiral Shares in all or at least most of your funds. In the long run, the amount you manage to invest and your asset allocation is worth much much more than a 0.1% expense ratio difference. (Now, if you're going to talk about some crazy investment with a 2% expense ratio or something, that's another story, but it's hard to go wrong at Vanguard in that respect.)" "A fascinating view on this. The math of a 10% deposit and projected 10% return lead to an inevitable point when the account is worth 10X your income (nice) and the deposit, 10% of income only represents 1% of the account balance.  The use of an IRA is neither here nor there, as your proposed deposit is still just 1% of your retirement account total. Pay off debt? For one with this level of savings, it should be assumed you aren't carrying any high interest debt.  It really depends on your age and retirement budget. Our ""number"" was 12X our final income, so at 10X, we were still saving. For you, if you project hitting your number soon enough, I'd still deposit to the match, but maybe no more. It might be time to just enjoy the extra money. For others, their goal may be much higher and those extra years deposits are still needed. I'd play with a spreadsheet and see the impact of reduced retirement account deposits. Note - the question asks about funding the 401(k) vs paying down debt. I'd always advise to deposit to the match, but beyond that, one should focus on their high interest debt, especially by their 50's." Toward the philosophical side of your question, it seems to me that what is most important is knowing how well your fund is performing versus it's benchmark. This is an actionable piece of information that can help you get out of an under-performing fund, although if you're already using Vanguard it's likely a low cost and broadly diversified fund. Ultimately, what you want to avoid over the long term is under-performing the market due to high fees, market timing, poor fund selection etc., and selecting a fund that closely tracks the market seems to be the best way to achieve this, assuming that you intend to be a passive investor. I don't see a clear benefit to calculating a personal rate of return. If the fund is performing well versus its benchmark, you are likely to stay with it, and if it is performing poorly, you  are likely to pull out. At the end of the day, the complicated accounting won't actually change the amount you've got in your account, so I'd recommend picking a good fund, checking up on it once in a great while, and putting your time to better purpose. My personal gold/metals target is 5.0% of my retirement portfolio. Right now I'm underweight because of the run up in gold/metals prices. (I haven't been selling, but as I add to retirement accounts, I haven't been buying gold so it is going below the 5% mark.) I arrived at this number after reading a lot of different sample portfolio allocations, and some books. Some people recommend what I consider crazy allocations: 25-50% in gold. From what I could figure out in terms of modern portfolio theory, holding some metal reduces your overall risk because it generally has a low correlation to equity markets. The problem with gold is that it is a lousy investment. It doesn't produce any income, and only has costs (storage, insurance, commissions to buy/sell, management of ETF if that's what you're using, etc). The only thing going for it is that it can be a hedge during tough times. In this case, when you rebalance, your gold will be high, you'll sell it, and buy the stocks that are down. (In theory -- assuming you stick to disciplined rebalancing.) So for me, 5% seemed to be enough to shave off a little overall risk without wasting too much expense on a hedge. (I don't go over this, and like I said, now I'm underweighted.) "Excellent question, though any why question can be challenging to answer because it depends on the financial products in question.  At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability.  This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are ""risky.""  Again, with the national debt and the political game in our current time, it does not feel this way.  But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline.  Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the ""go with what you know.""  Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money ""at home"" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best?  The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like.  I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world." @bstpierre gave you an example of a portfolio similar to IFA's 70 portfolio. Please, look other variants of example portfolios there and investigate which would suit to you.  Although the example portfolios are not ETF-based, required by the op, you can rather easily check corresponding components with this tool here. Before deciding your portfolio, fire up a spreadsheet (samples here) and do calculations and do not underestimate things below: Bogleheads have already answered this type of questions so why not look there? Less reinventing the wheel: google retirement portfolios site:bogleheads.org. I am not making any recommendations like other replies because financial recommendations devalue. I hope I steered you to the right track, use less time to pick individual funds or stocks and use more time to do your research. How much should a rational investor have in individual stocks? Probably none. An additional dollar invested in a ETF or low cost index fund comprised of many stocks will be far less risky than a specific stock. And you'd need a lot more capital to make buying, voting, and selling in individual stocks as if you were running your own personal index fund worthwhile. I think in index funds use weightings to  make it easier to track the index without constantly trading. So my advice here is to allocate based not on some financial principal but just loss aversion. Don't gamble with more than you can afford to lose. Figure out how much of that 320k you need. It doesn't sound like you can actually afford to lose it all. So I'd say 5 percent and make sure that's funded from other equity holdings or you'll end up overweight in stocks. "At first blush, this seems like it makes sense - assuming, like you say in your question, that you are perfectly confident in your ability to repay (even if you need to pay the balance in full if you lose your job), then this seems like a guaranteed 4% return, and a reasonable part of your retirement portfolio. Where it falls apart, though, is that you're paying yourself. You're just taking the money out of one pocket and putting it in another. So really you're getting a guaranteed 0% return. You're losing the compounding growth of the loan amount while it's out of your accounts, and the fact that you can afford the 4% interest means you could have been putting that into a requirement account as well aside from the loan - so it doesn't really count as ""interest"" in the sense that your money is passively making money for you. So ultimately: no, it shouldn't count as part of your bond allocation." Yours two funds are redundant.  Both are designed to have a mix of bonds and stocks and allow you to put all your money in them.  Pick the one that has the lowest fees and stick with that (I didn't look at the funds you didn't select...they didn't look great either).  Although all your funds have high fees, some are higher than others, so don't ignore fees. When you have decided on your portfolio weights, prioritize your money thus: Contribute enough to your 401(k) to get the full match from your employer Put everything else toward paying off that credit card until you have 0 balance.  It's ok to use the card, but let it be little enough that you pay your statement balance off each month so you pay no interest. Then set aside some savings and invest any retirement money into a Roth IRA.  At your income level your taxes are low so Roth is better than traditional IRA or 401(k).  If you max out your Roth, put any other retirement savings in your 401(k). "If I were in your shoes I'd probably take the Vanguard Total Market fund with Admiral shares, then worry about further diversification when there is more in the account. Many times when you ""diversify"" in to multiple funds you end up with a lot of specific security overlap.  A lot of the big S&P 500 constituents will be in all of them, etc.  So while the 10 or so basis points difference in expense ratio doesn't seem like enough of a reason NOT to spread in to multiple funds, once you split up the money between Large, Mid, Small cap funds and Growth, Value, Dividend funds you'll probably have a collection of holdings that looks substantially similar to a total market fund anyway. Unless you're looking for international or some specific industry segment exposure and all of the money is going to equities anyway, an inexpensive total market fund makes a lot of sense." "Wow, this analysis really surprised me. Very complete and useful, but i think my teacher request was easier. He just said: ""Try to build a diversified portfolio. Then try to add a commodity (like silver or gold) and understand how the risk vary introducing an asset like this."" So, i'm basically making a stocks portfolio and i'm calculating its expected return and risk. (for example 40%FB, 10%JNJ, 20%GS, 10%F and 20%MCD) then i'm adding GLD (so now i have something like 20%FB, 10%JNJ, 10%GS, 10%F and 20%MCD 30%GLD) and i'm actually making an excel spreadsheet where i calculate all the: -Expected returns -St Deviation -Covariance  At the end i compare the returns and the risks on the 2 different portfolios." Though I do think it is important to have a diversified portfolio for your retirement, I also think it's more important to make sure you are at no point touching this money until you retire. Taking money out of your retirement early is a sure fire way to get in a bad habit of spending this money when you need a little help. Here's a tip: If you consider this money gone, you will find another way to figure out your situation.  With that said, I also would rather not put a percentage on this. Start by building your emergency fund. You'll want to treat this like a bill and make a monthly payment to your savings account each month or paycheck. When you have a good nine times your monthly income in here, stop contributing to this fund. Instead start putting the same amount into your IRA instead. At this point you should no longer have to add to your emergency fund unless there is a true emergency and you are replacing that money. Keep in mind that the amount of money in your emergency fund changes significantly in each situation. Sit down with your bills and think about how much money you would need in the event you lost your job. How long would you be out of work? How many bills do you have each month that would need to be covered? Here's how this works in the United States. There's no law regarding your behavior in this matter and you haven't broken any laws. But your broker-dealer has a law that they must follow. It's documented here: The issue is if you buy stock before your sell has settled (before you've received cash) then you're creating money where before none existed (even though it is just for a day or two). The government fears that this excess will cause undue speculation in the security markets. The SEC calls this practice freeriding, because you're spending money you have not yet received. In summary: your broker is not allowed to loan money to an account than is not set-up for loans; it must be a margin account. People with margin account are able to day-trade because they have the ability to use margin (borrow money). Margin Accounts are subject to Pattern Daytrading Rules. The Rules are set forth by FINRA (The Financial Industry Reporting Authority) and are here: