Asset Location

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Here’s a tip on asset location from one of my favorite blogs and authors, Jonathan Clements from Humble Dollar:

After deciding what investments to buy, we should consider asset location. What’s that? It involves divvying up investments between taxable and retirement accounts. If investments generate large annual tax bills—think taxable bonds and actively managed funds—we’ll typically want to hold them in a retirement account.

Jonathan’s advice is the traditional advice. Put your taxable bonds, like the Thrift Savings Plan (TSP) F and G funds, into your retirement accounts. This is what I do. My F and G funds are in the TSP, clearly a retirement account, and my international bonds (which they don’t have in the TSP) are in an individual retirement account (IRA).

I don’t own actively managed funds, and I also don’t invest in real estate investment trusts (REITs), although I have in the past and I think about it pretty frequently.

There is another school of thought, though. The White Coat Investor has a different take. You can read about them in his posts entitled My Two Asset Location Pet Peeves and Bonds Go in Taxable!

Of note, just about everyone says to put actively managed funds or REITs in a retirement account, so you won’t find any arguments there.

If you’re really interested in this concept/discussion, the Bogleheads Wiki on tax efficient fund placement is a great read as well.

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