Two Different Investment Strategies
When hearing the terms asset allocation and asset location, many of us conclude that these are synonyms. These terms are actually two separate investment strategies that can be used in tandem to create a well-balanced portfolio capable of reducing risk and minimizing tax.
Asset allocation is the more commonly known term and is the strategy of diversifying a portfolio across different asset categories to reduce overall portfolio risk. There are many investment categories and sub-categories, with the most common categories being stocks and bonds. Which investment categories to use and how much of the total portfolio to put into each investment category is a decision that is dependent on the investor’s situation and risk preferences. Finding the proper asset allocation that will match an investor’s tolerance for volatility is a crucial decision that will help maximize risk-adjusted investment returns.
In an era where pensions are few and far between and future Social Security benefits are in question, it’s important for individuals and their families to save for their own retirement. A great and simple way to save for your retirement (with potential tax savings) is through an Individual Retirement Account (IRA). IRA contributions for tax year 2016 are due by April 18, 2017 (this year’s “tax day” as opposed to April 15).
TRADITIONAL vs ROTH IRA
For eligible taxpayers, the traditional IRA offers a current tax savings opportunity in the form of a tax deduction for the amount of your contribution. Future withdrawals of traditional IRA principal and earnings are taxed at ordinary income tax rates. Roth IRA contributions are not deductible, but qualified withdrawals are tax free. Roth IRAs offer the advantage of tax-free growth.
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