Q&A: Best Bond Home


I know I need bond funds but, which is it best place to have bond funds? In IRA'S, Roth, 401 or in my regular taxable account? Which is the worst place to have bond funds?


If you are one of those smart investors who manages all of your accounts as if they are part of a single portfolio, the best place for any income generating vehicle in in tax advantaged accounts. I would suggest placing bonds in a Roth IRA first (because it's tax-free). Then, if you still have a portion of your total portfolio bond allocation remaining, place those asset in 401k accounts and regular IRAs. Only if you still have some of you bond percentage left to invest should it go into your taxable accounts.

Real estate investment trusts should also be help in tax-advantaged accounts as opposed to those that a taxed on an ongoing basis.

Finally, equities are best utilized in your taxable accounts because a stock’s growth isn’t taxed until you sell it. That means you get to take advantaged of some deferred growth. Plus, if you’re in a higher tax-bracket, DFA (Dimensional) has some great tax-managed equity funds.


Don McDonald2 Comments