An Evidence-Based Approach to Sustainable Investing Part III: Sustainable Investing Today
Written by Andrew Hunt
Written by Andrew Hunt
When it comes to buying or selling your home, most of us already know that the price depends on three things: location, location, location. Asset location is a similar, if less familiar rule that applies to your investments. By managing asset location within your portfolio, we help you keep as much of your wealth as possible – even after the tax man takes his cut. Given how deep that cut can be, it’s another way we add value to your total experience as an investor.
Asset Location: A Working Definition
Let’s begin by noting that asset location should not be confused with asset allocation. The two are related, but separate beings, like cousins or siblings.
Why Do It?
There’s empirical evidence that asset location is worth the extra effort it takes. Financial commentator Michael Kitces points to a Morningstar analysis indicating that a well-executed asset location strategy can add as much as a half-percent to your bottom line each year . That’s $500/year for every $100,000 invested (which, we might add, can represent a good chunk of your advisor’s fee returned to you). Why leave that money sitting on the table?
Why You (Probably) Need an Advisor to Assist
It makes intuitive sense that, by locating your most heavily taxed investments within your tax-sheltered accounts, you can minimize or even eliminate their tax inefficiencies. But it’s not as easily implemented as you might think.
First, there is only so much room within your tax-sheltered accounts. After all, if there were unlimited opportunity to tax-shelter your money, we’d simply move everything there and be done with it. In reality, challenging trade-offs must be made to ensure you’re making best use of your tax-sheltered “space.”
Second, it’s not just about tax-sheltering your assets; it’s about doing so within the larger context of how and when you need those assets available for achieving your personal goals. Arriving at – and maintaining – the best formula for you and your unique circumstances involves many moving parts.
Never Heard of Asset Location? Here’s Why
We don’t see asset location frequently covered in the popular financial press. Why is that? We believe it’s in part because a large swath of the financial industry ignores the need. You’ll typically only see asset location planning offered by an advisor (like Hiley Hunt Wealth Management), who is well-positioned to provide objective counsel and oversight for your larger holdings. In the absence of this oversight, you’ll find:
While most investors may not be aware when they are missing out on effective asset location, the resulting money they may unnecessarily lose to taxes can be very real. We look forward to continuing to incorporate asset location in its proper place within your overall wealth management. Can we answer additional questions? Let us know!
Learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management
 Michael Kitces, “Asset Location: The New Wealth Management Value-Add For Optimal Portfolio Design,” March 6, 2013; and Morningstar Tries to Quantify The Value of Financial Planning,” November 12, 2012.