Locate assets in a tax-efficient manner
Investing strategies are not limited to just picking good funds; it's important to place funds in the most appropriate vehicle. Because 401(k)s are generally tax-deferred vehicles, it can make sense to place assets that are subject to higher tax rates in those kinds of plans and hold other assets in taxable accounts, says Jeff Nauta, a financial adviser with Henrickson Nauta Wealth Advisors in Belmont, Mich.
"Bonds, for example, throw off interest, which is taxed at ordinary income rates, while stock dividends and capital gains are taxed at a lower rate. So bonds are better in retirement accounts than stocks, in that situation," he says.
Christine Fahlund, a senior financial planner and vice president of T. Rowe Price Investment Services, recommends putting aggressive investments in Roth IRAs, where they can grow unrestrained for many years since they don't have to be tapped for required minimum distributions, or RMDs.