fbpx
U

Asset Location

January 20, 2012

In past shows, we have often covered the topic of proper asset allocation when investing, but today’s podcast focuses on the importance of asset location.  This means focusing not only on diversification across asset classes in your portfolio, but also tax diversification within all account types.

Today’s show topic is a response to an email from a listener who was curious about our strategies for asset placement within all the different types of available investment accounts.  Below, our thoughts on asset location is broken down by account type:

  • Taxable accounts:  This includes any individual or joint brokerage accounts.  We typically like to hold investments with long term-growth potential, as well as those assets that have potential for loss harvesting.  The reason for this is that any income received in these accounts is taxable in that given year.  Holding riskier assets that may produce losses can help offset taxable income.  Investments that pay dividends can also work well in a taxable account because they offer a preferential tax rate.
  • Tax-deferred accounts:  This category is for your IRAs,  401ks, 403bs, Rollover accounts, etc.  In tax-deferred accounts, you don’t pay tax until you pull the money out in retirement.  Oftentimes with these accounts, you have to “love the one you’re with”, meaning you have to choose from the limited options that are offered to you within a plan.  It is important to choose the best options available to you within these accounts and then massage the rest of your portfolio to work together for the big picture.  We typically like to hold fixed income assets in tax-deferred accounts to put off paying tax on the income that is produced until retirement.
  • Roth accounts:  Roth accounts have the incredible advantage of being tax-free.  You essentially put money in now, let it grow, and never pay tax on it.  We obviously want to hold assets that have potential for significant growth in order to take advantage of that growth being tax free.  That being said, you only want to hold relatively safe, comfortable assets because losses are not allowed.  In Roth accounts, we commonly hold commodities, small and mid cap investments, and large cap growth investments.

We hope this gives you guys a good idea of what to consider when constructing your own portfolio.  You should also keep in mind that if you hold fixed income and equity investments in different accounts, performance for each account will not be the same.  You should always be looking at all of your accounts working together as a team, rather than each one separately.

Also in today’s show:  Brian gives his thoughts on the journey of a small business man and why he thinks entrepreneurship is harder than ever.

We would love to hear your feedback on today’s show as well as suggestions for future shows.  You can comment below or on our Facebook and YouTube pages.

Most Recent Episodes

Can Money Buy Happiness? (Here’s the Truth)

Money and happiness aren’t directly correlated, but they are intertwined. Some believe that once they have a large, pie-in-the-sky amount of money, they will finally be happy. Others are working towards a more specific retirement number they hope will bring happiness....

Passive Income EXPOSED: 3 Ways to Actually Make Money (2022 Edition)

Passive income is a dream for many looking to get out of their 9-5 or just create extra income on the side. In this episode, we’ll break down different ways to actually earn passive income in 2022. In this episode, you'll learn: The easiest and hardest side hustles...

Millionaires Share Their Secrets to Financial Success! (2022 Edition)

It’s that time of year again: our annual Money Guy Wealth Survey episode. We’re back with all-new data for 2022, including new questions. You’ll learn who millionaires are, what they did to get there, and how they built their wealth. In this episode, you'll learn: The...

Dumb Financial Decisions That Americans Make! (Do You?)

Throughout our years of doing the show, we’ve seen more than our share of financial mistakes. Some are more common than others - in this episode, we’ll discuss some of the dumb financial decisions Americans make - and what you can do differently. In this episode,...

3 Things You SHOULD Spend Money On (Even During a Recession)

When is it okay to start spending money on things you want, but may not need? In this episode, we'll discuss when you can start spending money on "unnecessary" purchases, and what goods, services, and experiences are worth spending money on. In this episode, you'll...

3 WORST Types of Financial Crooks (Don’t Get Scammed!)

In the financial world, there are a lot of crooks that try to get into your pockets. From metaphorical crooks selling a bad product to literal crooks stealing your money, we'll cover the different types of financial crooks to watch out for and how you can protect...

Financial Advisors React to NFL Players Spending Their First Million!

Not many Americans will ever make over one million dollars in a year, but professional athletes regularly make that and more. In this react video, we'll see how NFL players spent their first million dollars after making it into the league. As we review their mistakes...

Everything You Need to Know About Real Estate Investing!

Over the years, we have had some great conversations about real estate investing. In this episode, we put together the ultimate guide to show you everything you need to know about real estate investing! In this episode, you'll learn: How to get started in real estate...

The Truth About The FIRE Movement! (Is FIRE Still Possible?)

Since the advent of the FIRE movement several decades ago, we have never experienced a period of higher inflation until now. With the market down over 20% and inflation at 40-year highs, is FIRE still possible in 2022? If it is, what does it take to become financially...