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When you build a FarPlanner plan, you can add accounts to track and forecast your actual accounts’ balances. You can add these accounts within your taxable, IRA, 401k and Roth ‘allocation groups’. As mentioned on our overall allocation page, FarPlanner recommends having three or more accounts per allocation group. As we’ll see, this mix of accounts allows FarPlanner to balance both safety and risk throughout your plan’s forecast.
The first recommended account is cash based (e.g., checking, savings). When forecasting your specific plan, FarPlanner can suggest transferring just enough funds into cash to cover your immediate needs.
The next recommended account is stock based (e.g., an S&P 500 ETF fund). When forecasting your plan, FarPlanner can suggest transferring only your long range needs into stocks. Stocks have historically out performed inflation, but at the risk of losing money if you have to sell right now. You reduce this risk by only investing funds needed long term into stocks. This gives your plan time to recover from temporary market downturns, and avoid ‘panic selling’. Diversified stock funds such as Vanguard’s VTI ETF can be a good choice.
The third recommended account is AAA-rated commercial or US treasury bond based. When forecasting your plan, FarPlanner can suggest transferring short to longer range needs into bonds. Bonds are less risky than stocks yet give a better return than cash historically, so good for your intermediate needs. Diversified bond funds such as Vanguard’s BND ETF can be a good choice.
For each of your allocation groups (e.g., IRAs, 401ks) you can tell FarPlanner how to use your accounts. FarPlanner uses your selections when it forecasts your plan to decide how to transfer funds between your accounts. For example, say you’ve told FarPlanner to use accounts per the diagram below. At all points in your plan when funds are needed less than 6 months out, FarPlanner will suggest transfers into your ‘Cash’ account. Conversely, FarPlanner will suggest transfers into ‘Stocks’ for needs more than 25 years out. You can always adjust percentages and quickly update your plan’s forecast to see impacts.
The last row above shows FarPlanner’s suggested fund allocations as of today. To meet these fund allocations, FarPlanner suggests which transfers to make between your accounts today.
These suggested transfers also support rebalancing your portfolio of accounts. Over time, as your stocks grow in value, they can take up a larger percentage your allocation group. FarPlanner’s suggested transfers help you return to your desired allocation percentages.
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