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Friday, September 30, 2011

Strategic Asset Location

Investors' Silent Business Partner
Many times there is a "missing manual" type of effect in personal finance.  For example, investors reach the point where they understand that asset allocation is the first and most important step in investing, determine that they should put 30%, say, in fixed income, but then are left hanging.  Should they buy individual bonds or exchange traded funds?  And how do they decide on different asset classes within the fixed income arena?

A similar situation exists when it comes to the location of investments among taxable, IRA, and Roth IRA accounts.  Where should stocks be held?  Where should bonds be held?  How does anticipated time of holding come into play?  How do expectations of future tax rates come into play?

These questions are addressed in this short article, "Asset Location, as Well as Allocation, Matters for Retirees" by Mark McLaughlin, to at least get do-it-yourself investors thinking about tax strategy.  This is not an easy area and is definitely not trivial.  The whole investment process is about managing risk and return over a long period of time such that the most ends up in your pockets and not your silent business partner's (Uncle Sam) pockets.  In fact, this is one area where a bit of consultation can yield/produce more dollars than the consultation costs.


  1. Not a trivial area, but one should definitely put some thought into proper asset allocation.

    Imagine buying gold funds in a taxable account! GLD ETF might look similar to other ETFs, but come tax time, you'll have a nasty surprise!

    Always good to have an idea where an asset would be most appropriate.

  2. This is not trivial at all. You know I expect the Bush/Obama tax cuts to remain for a extended time, but charts like that (the ones in the ink you provided) put things into perspective... big time!!!!