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As you know, when it comes to after-tax returns, where your clients hold assets can be just as important as what they hold. Yet, many self-directed prospects overlook this. 

Consider these three factors to highlight the importance of asset location: 

One, how is the income taxed?

Investments that produce taxable interest and ordinary dividends are usually best suited for retirement accounts. Clients should consider taxable accounts for assets that generate tax-exempt income.

Two, tax drag.

Discuss how high-turnover strategies can cause high tax drag unintentionally. Clients should consider using these strategies in retirement accounts.

Three, timing of capital gains.

Mutual funds generate capital gain distributions that cannot be controlled, and may be best suited for retirement accounts, whereas sales of individual securities can be timed and losses can be recognized, making these better for taxable accounts.

In your next conversation with a self-directed investor, discuss these factors to showcase why asset location can be just as important as asset allocation.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.