{"id":6168,"date":"2015-07-09T05:53:47","date_gmt":"2015-07-09T12:53:47","guid":{"rendered":"http:\/\/blog.paladinregistry.com\/?p=6168"},"modified":"2015-07-09T05:53:47","modified_gmt":"2015-07-09T12:53:47","slug":"asset-allocation-important-what-about-asset-location","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/investing\/asset-allocation-important-what-about-asset-location\/","title":{"rendered":"Asset Allocation is Important, but What About Asset Location?"},"content":{"rendered":"

It is almost a \u201cmantra\u201d by now that Asset Allocation<\/a><\/em><\/span><\/strong> is a critically important decision in designing the correct portfolio.\u00a0 That truth sometimes obscures another important decision for clients accumulating for or commencing a retirement drawdown \u2013 Asset Location<\/u> <\/em>is a second important focus.\u00a0 By \u201cAsset Location\u201d we mean:\u00a0 \u201cWhat is the optimum account location (tax-deferred account or after-tax account) for various types of investments?\u201d<\/p>\n

Many investors, after working through the exercise of determining an Asset Allocation, finally reach the finish line and reach an answer.\u00a0 They determine they may need to own 12-15 different investment securities to properly implement their desired investment policy plan and asset allocation.\u00a0 Often, these investors have multiple accounts \u2013 IRAs, 401ks, after-tax brokerage accounts (and maybe all three for both spouses).\u00a0 This begs the follow-up question:\u00a0 \u201cShouldn\u2019t all of the accounts in the household be invested similarly and own all 15 investments?\u201d\u00a0 There are a variety of considerations that ultimately depend on each family\u2019s unique circumstances, but many times the answer is \u201cNo\u201d.\u00a0 Several general observations can be made which may help produce clarity on why each account should NOT own all the investments for the allocation in similar proportions.<\/p>\n

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  1. There may be a cost advantage<\/u> in thoughtful asset location. Assume it requires 15 different investment securities (stocks<\/a><\/span><\/strong>, bonds<\/a><\/span><\/strong>, mutual funds, ETFs<\/a><\/span><\/strong>) to properly build a diversified portfolio that achieves the desired investment posture (40% bonds\/60% equities as an example).\n