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Investing Specialists

Tune Up Your Taxable Portfolio

Here's how to limit Uncle Sam's cut of your investment returns.

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In my experience, investors often short-shrift the question of what to put in their taxable accounts versus their tax-sheltered accounts. They focus almost entirely on asset allocation (finding the right stock/bond mix for a particular goal) and security selection, but pay less attention to which types of assets go where.

As a result, they needlessly surrender a big portion of their gains to the tax collector each year. That can be a particularly big problem for young and middle-aged investors. If the government is taking a large cut of your investment returns each year, your savings have less of an opportunity to compound over time.

The Before and After portfolios here show how you can fine-tune a taxable portfolio for maximum take-home returns, by putting more tax-efficient assets in the taxable accounts and steering high-tax investments to the tax-sheltered accounts.

Christine Benz has a position in the following securities mentioned above: VTMGX. Find out about Morningstar’s editorial policies.

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