Monday, July 22, 2013

Tax Efficient Allocation

Posted on 6:13 AM by Unknown
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Tax Efficient Allocation

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Tax Efficient Allocation

Postby Carletto » Thu Jul 18, 2013 5:10 pm
If my assets are distributed the following way how would I best allocate for tax efficiency?
Real Estate (home) 20%
Tax Free 15%
Taxable 65%
Thank you
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Re: Tax Efficient Allocation

Postby Chris33 » Thu Jul 18, 2013 7:08 pm
Read John Bogle's book titled, "Little Book of Common Sense Investing." Index funds are the best for taxable accounts because of the buy and hold nature of the accounts. As to asset allocation, a simple three fund allocation is recommended. The book is a short read but has invaluable information.
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Re: Tax Efficient Allocation

Postby BL » Thu Jul 18, 2013 7:21 pm
The Wiki here has some good information: http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement
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Re: Tax Efficient Allocation

Postby avalpert » Thu Jul 18, 2013 8:31 pm
What is your desired asset allocation - don't let the tax tail wag the dog.
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Re: Tax Efficient Allocation

Postby grabiner » Sat Jul 20, 2013 11:17 pm
Carletto wrote:If my assets are distributed the following way how would I best allocate for tax efficiency?
Real Estate (home) 20%
Tax Free 15%
Taxable 65%
Thank you


First choose an asset allocation: how much of your portfolio should be in bonds and stocks? Even if you would prefer having bonds only in tax-deferred accounts, you need to hold enough in taxable to reduce your portfolio to the desired risk level.

Only then should you worry about tax efficiency: use stock index funds in the taxable account, and municipal bonds (preferably from your state if there is a low-cost option) if you hold bonds in your taxable account.
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Re: Tax Efficient Allocation

Postby M_to_the_G » Sun Jul 21, 2013 4:07 am
Does a home count as an asset?
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Re: Tax Efficient Allocation

Postby grabiner » Sun Jul 21, 2013 4:20 pm
M_to_the_G wrote:Does a home count as an asset?


A home is part of your net worth (and the mortgage is a negative item in your net worth), but it isn't usually counted in your asset allocation, because you can't reallocate it easily and you don't intend to treat it as an investment. If the stock market rises 25%, you will sell some stock to rebalance; if your home value rises 25%, you can't sell some of your home to buy more stock or bonds, and you don't need to change your asset allocation because it still provides you just as good a place to live.
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