Once you have calculated the amount you wish to allocate to each asset class, separate the allocations into the categories of taxable accounts and retirement accounts. Continuing with the previous example, let us assume that, regarding your core allocations, 35 percent is allocated to taxable accounts (e.g., funds for a down payment on a home, missions, and education) and 25 percent is allocated to your retirement account. Let us also assume that half of international and small-cap investments are allocated to retirement accounts and half are allocated to taxable accounts. How do you determine the amount of these allocations?

The target amount of each asset that you should allocate to your taxable accounts and retirement accounts is the percentage of each asset multiplied by the target portfolio amount. To find the amount of core assets you should allocate to your taxable accounts, multiply 35 percent by $100,000, which results in $35,000 for your core taxable account. To find the amount of core assets you should allocate to your retirement account, multiply 25 percent by $100,000, which results in $25,000 for your core retirement account. You can calculate the allocation amounts of the remaining asset classes in a similar manner.

No percentage of your emergency fund is allocated to a retirement account. Since this account is for emergencies, the funds must be readily available; hence, you should not put these funds in a retirement account.