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Many investors are aware of the practice of Asset Allocation, which is the process of allocating a purposeful amount of assets to less risky assets (Bonds) with the remainder of their assets allocated to more risky assets (Stocks). 

Fewer investors are aware of the practice of Asset Location, which is the process of investing differently in Tax Deferred Retirement Accounts (TDRA’s) versus Taxable Accounts (TA’s).  By differently I mean, the decision to make either TDRA’s more risky or safe than TA’s or vice versa. 

Both Asset Allocation and Asset Location are an important part of Warburton Capital’s Investment Allocation Process™ Or IAP™.

Asset Location may motivate an older investor to hold more Bonds in a TDRA because asset growth in a TDRA will have less favorable tax treatment for the investors beneficiaries when inherited.

Asset Location may motivate a younger investor to hold more Bonds in a TA because they can access these funds without penalty if needed before they obtain age 59.5.  Asset Location is important to address when building a purposeful portfolio as it is a nuance which can lead to more flexibility for the investor and more favorable tax treatment for that investor’s heirs.  Wanna talk about it?  Bring it on!