Hey Lykkers—let’s talk about an investing detail that’s easy to miss but can meaningfully improve long-term results: taxes. You can research funds for hours, but if you place them in the wrong “account neighborhood,” you may give up more return than you expect.

It’s not only what you buy—it’s where you hold it. Pick up a coffee or tea, and let’s break down the practical strategy known as asset location.

Asset location means placing different investments into different account types to reduce lifetime taxes while keeping your overall investing plan intact. Think of your accounts like different types of property with different tax rules. A taxable brokerage account typically involves ongoing taxes on dividends and realized gains. Tax-advantaged retirement accounts such as a 401(k), an IRA, or a Roth IRA generally provide tax deferral or tax-free growth depending on the account’s rules, which can change how fast your money compounds over time.

The core idea is simple: put investments that tend to create frequent taxable income into accounts that shelter that income. In many cases, bond funds generate interest that is taxed at ordinary income rates. High-dividend stock funds may generate recurring payouts that create ongoing tax bills. REIT funds can also distribute dividends that are often taxed less favorably than qualified dividends. Holding these “income generators” inside a tax-deferred account can help keep more of that return compounding instead of being reduced each year by taxes.

On the other side, some investments are more “tax-efficient” in a taxable account because they tend to distribute less taxable income and allow you more control over when gains are realized. Broad, low-turnover index funds and many ETFs often distribute relatively modest dividends and may avoid frequent capital-gains distributions. Individual growth-oriented stocks may focus more on price appreciation than dividends. Instead of “betting” on appreciation, you’re focusing on long-term price growth as part of a diversified plan.

To reinforce the point about tax efficiency, Christine Benz, a personal-finance commentator, said, “ETFs are just a terrific, tax-efficient way to invest taxable dollars.” This is one reason many investors consider holding more tax-efficient stock exposure in taxable accounts, while reserving sheltered accounts for investments that tend to generate higher annual taxable income.

A quick example shows why placement can matter. If a taxable bond fund distributes $1,000 of interest and your marginal rate is 32% (assumption), you could owe about $320 in taxes—money that no longer compounds for you. If, instead, you hold a more tax-efficient stock ETF in taxable, you may pay tax on a smaller dividend stream and retain more control over when you realize gains by choosing when (or whether) to sell.

A simple checklist can help you apply asset location thoughtfully: (1) list your account types (taxable brokerage, 401(k), and IRAs), (2) identify whether each holding is more like an income generator or a growth-oriented holding, and (3) rebalance locations where appropriate—while keeping your overall asset allocation and risk level consistent with your plan.

Asset location is a quiet, practical optimization that can help you keep more of your portfolio’s compounding working for you.