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Key Takeaways:

  • Asset allocation refers to the allocation of investments across broad asset classes. It is a portfolio’s blueprint, tailored to help deliver an optimal risk-adjusted return.
  • Asset location seeks to enhance a portfolio’s after-tax returns by placing assets in tax-efficient vehicles.
  • To choose the most tax-efficient vehicle for an asset, investors must understand the portfolio’s objective, the types of assets in the portfolio, and their short-term liquidity needs.
  • A common view is to hold tax-inefficient assets in tax-advantaged accounts and hold tax-advantaged assets in taxable accounts.