Taxes may be a blind spot in your investment portfolio

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Asset location, which aims to boost after-tax returns, is perhaps just as important as asset allocation for many investors.

This aims to boost after-tax investment returns by strategically holding stocks and bonds in certain account types, like taxable brokerage accounts and Roth or pre-tax retirement accounts.Many investors are probably familiar with the concept of asset allocation, which entails selecting the right mix of stocks and bonds individual retirement accounts and 401 plans. Investors defer tax on contributions but pay later upon withdrawal.These include traditional brokerage accounts.

"It's important because you want to reduce your tax drag," said Robert Keebler, a certified public accountant based in Green Bay, Wisconsin, and partner at Keebler & Associates.Employing such a strategy can boost after-tax returns by 0.05% to 0.3% a year, depending on the investor, according to a 2022 Vanguard

"Earnings from bond investments are mostly interest and taxed at ordinary income tax rates, meaning a hit of up to 37% plus any surcharges for high-income investors," McGuire said."So you want those bonds to be sheltered." High-growth investments likely belong in a Roth instead of pre-tax retirement account, since investors wouldn't pay tax on earnings later, Keebler said. , are generally better-suited for taxable accounts, advisors said.

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Taxes may be a blind spot in your investment portfolioAsset location, which aims to boost after-tax returns, is perhaps just as important as asset allocation for many investors.
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