Monthly Archives: March 2015

Personal Finance

Determining Optimal Asset Location

A diversified portfolio will contain many different types of investments, including:

  • US Stocks
  • International Stocks
  • Bonds
  • REITs (Real Estate Investment Trusts)

These investments are taxed differently, and it turns out this is really important. If you put tax efficient investments into your taxable accounts and you put your tax inefficient investments into a tax-sheltered account, you will enjoy much greater returns over time. Figuring out which investments belong in which accounts is known as the asset location problem. read more »

Personal Finance

The Benefits of the Roth IRA

There’s a lot of hype about the Roth IRA. With a Roth IRA, you pay taxes on the money you invest but you don’t have to pay taxes when you withdraw the money. The traditional IRA and 401(k) is the exact opposite: you invest pre-tax income, but you have to pay taxes when you withdraw the money at retirement. So if your current tax rate is lower now than it will be in retirement, the Roth IRA is a better place to place your money than a traditional IRA/401(k). If you mathematically model the post-tax values of both investment accounts, you can clearly see that this is true: read more »