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Allocation- Risk, Return and Tax Efficiency

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  • Allocation- Risk, Return and Tax Efficiency

    Seems like the overarching advice is to use the most tax efficient accounts to hold your least tax efficient assets as well as your assets with the potential for highest return. But a lot of times those holdings have the highest returns because they are riskiest. I can see the upside of holding all of my REITs and Small Cap Value in my HSA and Roth IRAs, but that also means I'm taking the most risk in my best long term accounts. How do you guys reconcile this?

  • #2
    Good question. I think in general, when it's recommended put riskiest assets in Roth, for example, it's referring to stocks vs bonds.

    For your example, I personally don't believe the SCV premium exists anymore, so I wouldn't have that anywhere. REITs are stock/bond hybrids kinda, so not the best for Roth. A Nasdaq or Spy index fund would be a good one for Roth. I would just put the tilts in your 401k. Like you said, you don't wanna put SCV in Roth, and see 20 more years of underperformance.