Businesswomen analyzing investment charts in meeting room


When it comes to investing, asset allocation is very important. This is the percentage of total investments that are allocated to different investment areas; the most common include stocks, bonds, and cash. It is crucial to diversify your investment portfolio so you’re not taking on unnecessary risk, but, for wealthy investors, it is also extremely important to consider where those different investments are put to maximize after-tax growth. Here is why asset location can potentially help you supercharge your investment, and why Peter Culver believes it may be more important than asset allocation when determining an investment strategy.


When It Comes to Taxes, It’s All About Location


Peter Culver often presents this simple example when discussing asset location: An investor with $2 million in investment puts $1 million in a personal account and $1 million in an IRA. The two are very different when it comes to taxation: personal accounts are subject to taxes on bond interest and stock dividends as well as capital taxes on any sales of the stocks and bonds. There are no taxes on the investments in an IRA account during pre-distribution.


Given asset allocation, an investor will have a percentage of his or her money in stocks and bonds. Now there are two types of bonds that can be purchased: government/corporate bonds and municipal bonds. Government and corporate bonds pay a higher rate of interest, but the interest is taxable. Municipal bonds are not subject to taxes, but they typically pay a lower rate of interest.


In order to take advantage of the benefits of both types of bonds, an investor will need to consider asset location. By putting those government and corporate bonds in a tax-free account like an IRA, he or she will be able to bypass paying taxes on the interest generated. At the same time, although a personal account is taxable, municipal bonds are not, which make it a good location to put this type of investment. By putting investments in the best location, investors can significantly increase their after-tax return.






When it comes to family wealth management, there is nothing more important than death and taxes, which according to Benjamin Franklin are the only two certainties in this world. When it comes to wealth management, everyone looks for low fees and high performance; however, they should really be concerned with these two certainties.

According to Peter Culver, wealthy families may not have complete control over death and taxes, and honestly, no one ever does, but they do have control over the impact of death and taxes on their wealth. When planning for the future, you should fully understand what you are investing in, and how that will affect future generations, especially since family fortunes usually do not last past the third generation. Ideally, you would want everyone (across all generations) to be financially educated to help not only preserve, but grow, the family wealth.

In today’s world, the wealthy are paying capital gains taxes anywhere between 20% and 25%, and another 40% to 50% in income, estate and gift tax. On the other hand, investment fees range from 0.5%to 2%. With this knowledge, it is more likely for you to lose your wealth due to bad tax management rather than to high fees or bad performance.

The words Benjamin Franklin wrote over 250 years ago to Jean Baptiste Le Roy still stand true today. While you can always prepare yourself for the certainties of life, it is harder to prepare for the uncertainties. Don’t let bad judgement or not being fully educated limit your family’s wealth.