The most important determinant of returns and risk is asset allocation.

ALLOCATE YOUR ASSETS THE "RIGHT WAY"

Reducing taxes on your investment activities is critical to achieving your long term financial objectives. Allocating your assets to the correct type of account (taxable vs tax sheltered) can help pare your tax bill.

Roth IRAs & 529 College Savings Accounts

 If your investment plan calls for an equity allocation that exceeds the value of your taxable accounts, your next best option to hold your equities are your Roth IRAs and 529s.  Since withdrawals from those accounts are generally tax free, equities, as potentially the fastest growing asset class, can maximize the advantage of those tax free withdrawals. As between the two, tilt Roths more to stocks than 529s as Roths’ time horizons are typically longer.

 Contrary to Popular Opinion, Your Bond Allocation Should be in Your 401Ks and Traditional IRAs

 While investments in tax sheltered accounts like 401Ks and traditional IRAs grow tax free withdrawals are taxed as ordinary income. This is true even if the profits came from stocks. Your fixed income allocation is best held in these accounts.  This allows you to hold stocks in taxable accounts/Roths/529s where you get a tax advantage.

 Why are IRA BDAs the Last Resort to Allocate Toward Stocks? 

An IRA Beneficiary Distribution Account is a traditional IRA that has been inherited. Regardless of your age, the recipient is required to take an annual withdrawal from the account. These are even better suited to fixed income than 401Ks and traditional IRAs. The time horizon of these accounts is shorter due to the need to make immediate annual withdrawals.