I have a confession to make given the limited amount Ive written about making sure your investment assets are properly diversified, youd think that my assets would be diversified right? I write about it often enough that I cant possibly claim that I just didnt think about it. In reality, Im actually pretty lazy and lax when it comes to making sure Im totally diversified but luckily, and I know this only because I did the math yesterday, Im actually properly diversified except its not entirely by design, which makes it bad nonetheless.

Last night I started wondering if I actually was properly diversified across all my investment accounts because I have a relatively complex retirement account structure. Its not incredibly complex but I have a Roth IRA, a SEP-IRA, a 401(k), and a Rollover IRA. Its more than the vanilla and likely more common configuration of just a Roth IRA and a 401(k), or similar deferred taxation employer sponsored retirement account; but ultimately the point is that I have four accounts. Thats four accounts with four interfaces with four asset distributions. If you abstract away the accounts and just look at the funds, I have around eleven securities. I have four custom ones inside my 401(k), two different Target Retirement Funds (Vanguards 2045 and 2050), a Total Market Index mutual fund, an S&P Index mutual fund, and three stock holdings.

Does Diversification In One Account Mean Diversification Across All Of Them? Potentially, thats what I did and I got lucky. The problem is that your funds will grow at different rates so after a year or so, unless youre rebalancing, your diversification will be out of whack. If you have target retirement or lifecycle funds, those allocations will change under you without your knowledge (this is why they warn not to use it with other funds, because the allocations change). A lot of factors come into play so it becomes important to double check your allocations at least once a year, when you rebalance.

I Lucked Out. After looking at all the funds and doing some math, I plugged it all into a speadsheet I made, I was pretty surprised to learn that I actually had 92.23% of my assets in equities (stocks), 5.55% of my assets in bonds, 0.86% in cash, and 1.36% in an other category. Is that correctly diversified? According the 120 rule, yes. It says that I should have 120% minus my age (27.167) invested in stocks, the rest in bonds. I should have 92.83% in stocks, compared to the actual of 92.23%, thats pretty darn close for being completely by accident.

Consider Other Diversification Rules Too. 120 minus age only refers to the stock/bonds mix, it doesnt consider other lines of diversification such as small cap vs. large cap (within equities) or domestic vs. international exposure. I dont know any of these rules off hand, I dont think there are any, but youll want a little bit of exposure in those dimensions as well.

Ultimately, you want to be on top of your retirement assets because its one of the most valuable assets youll have as you age. While it was easy for me to just let it fall to the wayside, confident that since I was diversifying my individual accounts, it wasnt the right thing to do and its something Ill have to review once a year when I rebalance.