Location & Allocation

When building portfolios you usually hear a lot about asset allocation which is typically the mix of stocks and bonds within a portfolio. One other important criteria for developing and building an efficient portfolio is asset location. Asset location is referring to the type of account in which you strategically choose to put specific holdings within your portfolio based on suitability and your situation.

Taxable vs. Non-Taxable

There are different types of accounts such as IRAs and 401ks that are tax deferred. There are tax-advantaged accounts such as Roth IRAs and then there are regular taxable accounts such as a Brokerage or Strategic Asset Management (SAM) accounts. The different types of assets that you build your portfolio with have different tax implications therefore, you want to make sure that when you’re building the portfolio that you put the proper assets in the proper bucket. For instance, assets such as Real Estate Investment Trusts (REIT) and Fixed-Income Bonds kick off ordinary income. Typically, what we would want to do, if possible, is put those type of assets into an account that has a tax deferred or tax advantage status. For equities, growth from capital gains and dividends which are taxed at more favorable capital gain rates, we want to put potentially put those into taxable accounts.

Stress Free Withdrawals

Asset location can be very important while you’re accumulating assets, but it’s also very important when you are in a withdrawal phase of life. When pulling money out to satisfy your goals both before retirement and in retirement is to efficiently create a stream of income for you live on. With the different types of accounts and assets within each account we can effectively control your taxable income when you start to use those funds. This is a high-level overview of asset location and very specific to each individual situation.

 

Jay McGowan, CFP®, CPA, PFS
Senior Vice President
Director of Financial Planning
Email Jay McGowan Here

 

Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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