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there is nothing magic about having both your taxable and tax-deferred accounts equally diversified. What is important is your overall diversification....if you hold 2/3rds bonds in your 401K, but they are 30% of your nest egg, that is fine.

The main advantage of having some diversification within the 401K is that you can switch between asset classes without tax implications.

Thus, if you want to be at 70% equites, 30% bonds, and you have a 50/50 mix in your 401k, but mainly hold stocks in your taxable accounts (index funds for low cap gains distributions), if your stocks take off, you can sell some in the 401K, and put more into bonds, to maintain a 70/30% overall allocation.

Or the other way around, if stocks drop, and bonds go up 30%, like happened in 2001/2002. You move money from bonds to stocks in the 401K.

If you are within 5% of your allocation target, you don't need to do anything...but for most people, over time, you likely will see stocks outperform bonds...but not always..just look at 1929 to 1954....... a good time to be buying stock was in 1931......and you would have done this by selling your bonds and buying stocks.....(if you had the discipline!).....if you don't, buy lifestyle funds that automatically do it for you!.....

The other thing you can do with the 401k is feed contributions into the area that you need.....if you are falling short on bonds, buy more bond funds that month. Again, it is hard to buy bonds when 'stocks are going up and up'....but after 2001, you might also realize that stocks go 'down down down' just as fast at times. If you don't have the discipline to do it, by funds that automatically allocate your money between bonds and stocks (balanced funds or lifecycle funds). They will do it for you.

If you have to buy/sell outside your 401K/IRA, it becomes a taxable event and you give up gains (and the compounding on it) to Uncle Sam. Not good.


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