Maximizing Long-Term Wealth Accumulation: It's Not Just about "What" Investments to Make, but also "Where" to Make Them

Individuals who are saving for retirement are likely to know that the level of savings and the asset allocation of their savings are two very important factors affecting wealth accumulation. Another factor called asset location — which refers to the placement of certain types of assets in tax-deferred accounts and other types of assets in taxable accounts — is far less understood The winners of the 2004 TIAA-CREF Paul A. Samuelson Award tackled this issue head-on, and concluded that equities are far better suited for taxable accounts than for tax-deferred accounts, and that bonds are far better suited for tax-deferred accounts than for taxable accounts. The reason for this preference is the different tax treatment of equity investments compared to fixed-income investments.