Why Peter Culver Believes in Asset Location to Maximize Investment Returns

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.





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