Glossary
What is asset location?
Asset location is deciding which type of account holds each investment, so the same portfolio produces a better after-tax result. Assets that generate ordinary income usually belong in tax-deferred accounts; assets with favorable long-term treatment often belong in taxable ones. It is different from asset allocation.
Allocation decides what you own. Location decides where you own it. Most people focus on the first and overlook the second.
The logic is straightforward: interest is taxed at ordinary rates every year, so holding it inside a tax-deferred account defers that. Qualified dividends and long-term gains get favorable rates and can be harvested for losses, which only works in a taxable account.
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