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What is asset location?

Asset location is the practice of deciding which investments to hold in which type of account. Tax-inefficient holdings can sit in tax-deferred accounts while tax-efficient ones sit in taxable accounts. The goal is to improve after-tax returns without changing your overall allocation or the amount of risk you take.

Asset location is not asset allocation

Allocation is how much you own of each thing: stocks, bonds, and so on. Location is which account each of those things lives in. Two people can hold an identical portfolio, take identical risk, and keep meaningfully different amounts after tax, purely because of where the pieces sit. The words look similar and mean completely different things.

The general ordering

Investments that throw off regularly taxed income, such as bonds and REITs, are often better held in tax-deferred accounts where that income is not taxed each year. Broad stock index funds are already fairly tax-efficient and tend to work well in taxable accounts, where they also open the door to tax-loss harvesting. It is a general ordering, not a law, and your bracket changes the math.

Why Roth space tends to be the most valuable

Roth dollars grow and eventually come out without further tax, so the assets with the highest expected long-term growth are often the best use of that space. It is the one account where compounding is never shared. Since Roth room is usually the hardest to come by, deciding what earns a place in it is worth actual thought.

The honest limits

Asset location can improve after-tax outcomes, not guarantee them. It matters most when you hold a real mix of account types and a meaningful taxable balance. It also has to be maintained, because rebalancing and contributions move things around over time. And it should never be the reason to hold an allocation you are not comfortable with. Location serves the plan, not the other way around.

How this works at Hunt Wealth

We look at your accounts as one portfolio rather than several, place holdings where they are treated best, and keep the arrangement intact as contributions and rebalancing move money around.

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