Where you place assets in your portfolio can help you manage tax treatments in your portfolio. We break down how it works.
Full Article: Understanding Asset Location
When it comes to growing wealth, the assets you invest in are only part of the equation. Where you keep those assets plays a crucial role in maximizing your after-tax returns. This is where asset location comes in — a strategy that places investments in different types of accounts based on their tax implications to optimize your portfolio’s tax efficiency.
Key Takeaways:
- Asset Location Maximizes Tax Efficiency
Where you place your assets is just as important as what you invest in. Asset location optimizes your investments by considering the tax implications of each account type. - Asset Location vs. Asset Allocation
While asset allocation focuses on the mix of investments, asset location is about placing those investments in the right types of accounts (taxable, tax-deferred, or tax-free) to reduce tax burdens. - As Portfolios Grow, Asset Location Becomes More Crucial
As you diversify and your wealth grows, optimizing asset location can become more beneficial to maximizing after-tax returns. - Avoid Duplicating Asset Mixes Across Accounts
Having the same types of assets in all of your accounts can reduce the tax benefits of asset location. Certain assets, like equities, should be placed in tax-free accounts, while others, like bonds, are better suited for tax-deferred accounts. - Advisors Can Tailor Asset Location to Your Goals
A financial advisor can help optimize your asset location strategy based on your tax situation, income, and retirement objectives.