Retirees often invest in accounts that have different tax characteristics e.g., taxable accounts, tax-deferred accounts (such as traditional IRAs) and tax-free accounts (such as Roth IRAs).
Different types of investments also have different tax characteristics e.g., stocks are taxed differently from bonds and real estate is taxed differently from both stocks and bonds.
Asset location is the critically important task of deciding which types of investments to locate (or place) in which types of accounts.
In our opinion, properly diversified portfolios consist of 10-12 asset classes. However, this doesn’t mean that every account a client owns should hold the same assets.
In fact, it is rarely a good idea to do so!
Proper asset location helps us minimize the client’s current income tax liabilities.
It can also minimize the taxes that clients pay when they begin to withdraw money from their portfolios to supplement their retirement income.
Proper asset location is another way that Goepper Burkhardt attempts to maximize our client’s risk-adjusted, after-tax return.