Category Archives: Personal Finance

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 »

Personal Finance

Why Buying a House is Often a Bad Idea

A couple of months ago a friend of mine asked me why I thought buying a house was such a bad idea, and I responded with an email outlining my thoughts. Now whenever someone asks me what I think about buying a house, I just forward them that email. This blog post is basically a cleaned up version of that email with advice that is slightly more generalized.

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