The one thing better than harvesting tax losses is having no losses to harvest.
TAX EFFICIENT FUND placement is an often underrated topic. The goal of the tax efficient fund placement is to minimize taxes within your investments, and select the right account for those investments.
But how much does that actually matter?
Vanguardâs research finds that a thoughtful asset location strategy can add significantly more value than an equal location strategy. The value added typically ranges from 5 to 30 basis points of after-tax return, depending on circumstances (e.g., income, portfolio size).
Investors generally have access to different account types, including:
If you are an employee that may not have access to a retirement plan, you could perhaps consider a Solo 401(k) if you have "side hustle" business income.
Generally, if your investments are all in tax-deferred or tax-free accounts, fund placement will not make a huge difference for you. That is because these accounts already come with tax efficiency.
If that's your case, two things become important though:
1. Consideration between pre-tax, like Traditional 401(k) or after-tax account, like Roth 401(k). Put simply, this decision generally comes down to your marginal tax rate now versus marginal tax rate in the future (which isn't something easy to predict due to the ever-changing tax landscape).
2. Account allocation. It becomes equally important where exactly you are investing. Roth accounts grow tax-free and qualified withdrawals are tax-free. You likely don't want to hinder that growth by choosing conservative assets (like fixed income, Money Market Funds, and so on).
Tax-efficient fund placement becomes extremely important when you also have a taxable brokerage account, along with tax-advantaged accounts. Many funds pay dividends and distribute capital gains if placed in your taxable brokerage account. At the end of the year, you receive a 1099 with that income and must pay taxes on the dividends and certain distributions.
One thing to call out from history is that you generally shouldn't hold Target Date Retirement mutual funds (or any "proprietary" funds) in your brokerage account. This is because unexpected redemptions could cause a huge tax bill.
You may remember a Vanguard 2021 fiasco where Vanguard opened an institutional TDF to more investors (lowered the minimum investment from $100M to $5M), which caused smaller retirement plans to sell out of individual funds and move into the institutional fund. This triggered massive unexpected capital gains for anyone invested in the individual funds if held in a brokerage account.
All of those unnecessary taxes could've been avoided by:
Let me give you a simple example:
Letâs say you are in a 22% federal tax bracket and a 5% state tax bracket, and you have some money invested in a dividend fund like Schwab US Dividend Equity ETF (SCHD). SCHD dividends are generally qualified, which means that the dividends get preferential treatment at a 15% federal tax rate for this investor.
The dividend yield is 3.43%. Considering the tax rates, the tax drag is (15% + 5%) * 3.43% = 0.686%.
To put this in perspective, a $10,000 investment will yield ~$343 in annual dividends. The tax impact on that investment will be $60.86.
Of course, if that money was in a Roth IRA, you would pay $0 in taxes on dividend distributions. Alternatively, this is something you may need to decide whether a dividend-focused investing strategy is the right one for you. For example, a Total US Stock Market ETF could have almost 3x less tax drag, and potentially more growth.
As someone in their 20s (who is subject to the Net Investment Income Tax) my focus is 100% on a growth investment strategy, rather than income generation. For someone in their 60s, that strategy could be different (even though selling shares for capital gains is better from a tax timing point of view).
A few more important points:
REIT stocks/ETFs are the least tax-efficient asset class to hold in a brokerage account because their distributions arenât qualified, so you pay more tax (even though it may qualify for a 199A deduction).
Stocks that donât pay dividends are the most tax-efficient to hold within your taxable account (Adobe, Amazon, Netflix, and others). However, holding individual stocks may not be the best strategy from an investment and diversification standpoint.
A big benefit of a taxable account is that the money is always easily accessible (liquidity), and you can control your withdrawal timing. While there are strategies that allow you to withdraw from retirement accounts before age 59 (like Rule of 55, 72(t) SoSEPP, Roth conversions), a brokerage account is more flexible. Therefore, analyzing the contributions and investments that go into this account is crucial.
How do you maximize tax efficiency? Let us know in the comments!
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
NO. 29: WHAT MATTERS to long-term stock investors is the marketâs dividend yield and growth in earnings per share. Everything else is noise that can bully and seduce us into foolishness.
MONEY ILLUSION. We have the illusion weâre doing better if we earn 5% on our savings rather than 1%, even if these yields simply match the inflation rateâand hence in both cases we arenât making any financial progress. In fact, earning 5% when inflation is 5% leaves us worse off, because weâll lose more to taxes than in the lower-yielding scenario.
PREPARE FOR a long life. For a quick gauge of your life expectancy, try the Social Security and Society of Actuaries' Longevity Illustrator calculators. What will you learn? First, the longer you live, the longer you can expect to live. Second, lifespans vary widely. Educated, health-conscious Americans might live three or four years longer than average.
NO. 27: COST-CONSCIOUS investors can save thousands over their lifetime. Take two investors who salt away $5,000 a year for 40 years. One pays 1% of assets in annual investment costs, while the other incurs 0.1%. If both earn 5% a year before expenses, the cost-conscious investor will amass $618,000, while the high-cost investor garners $494,000.
NO. 29: WHAT MATTERS to long-term stock investors is the marketâs dividend yield and growth in earnings per share. Everything else is noise that can bully and seduce us into foolishness.
A CLOSE FRIEND’S LONG career in the motion picture business recently came to an end when the studio eliminated her job. Even before the pandemic, the industry was changing, so she wasnât surprised or, for that matter, especially sad about getting laid off. She was lucky to receive a good severance package and is now ready to do something different. But finding the right job will likely take time, so carefully managing her cash through the transition period is crucial.
“SELL THE SIZZLE, BOYS.” With those words from the sales manager at a big insurance company, the 2003 class of newly minted registered representatives were off to the races, extolling the virtues of the firmâs products to family, friends and anyone else who would listen.
I still vividly remember that moment. Yes, I was there.
To become registered reps, the 2003 class had to pass the necessary exams to get a Series 6 securities license and a license to sell life and health insurance.
I noticed that in the post by Dick Quinn – beyond-fees-is-using-a-financial-advisor-advisable , couple of folks had mentioned having flat-fee advisors. I see that it is lot easier to find advisors that charge a % of the assets under management but one that I am not fond of.
Have read mixed reviews about FACET, have found two sites that have flat-fee FAs
https://www.flatfeeadvisors.org/
https://saragrillo.com/2022/03/14/flat-fee-financial-advisors/
Are there other resources that one can look up?
Part of the “holistic”
I met with a Vice President of Fisher Investments, a very large and very well-advertised fee-only investment advisory firm, to see if they would be a good fit to manage my portfolio. It turns out they weren’t, and after they asked why, this was my reply:
Frank,
Thanks for taking the time to meet with me to explain how Fisher Investments works.
I respect you for asking for feedback. And since you asked:
1. I’m not a fan of the fee structure:
-Its size: Paying you $70,000 a year to manage my portfolio seems like an awful lot of money.
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Tax Efficiency
ArticleBogdan Sheremeta | Apr 4, 2026
TAX EFFICIENT FUND placement is an often underrated topic. The goal of the tax efficient fund placement is to minimize taxes within your investments, and select the right account for those investments.
But how much does that actually matter?
Vanguardâs research finds that a thoughtful asset location strategy can add significantly more value than an equal location strategy. The value added typically ranges from 5 to 30 basis points of after-tax return, depending on circumstances (e.g., income, portfolio size).
Investors generally have access to different account types, including:
If you are an employee that may not have access to a retirement plan, you could perhaps consider a Solo 401(k) if you have "side hustle" business income.
Generally, if your investments are all in tax-deferred or tax-free accounts, fund placement will not make a huge difference for you. That is because these accounts already come with tax efficiency.
If that's your case, two things become important though:
1. Consideration between pre-tax, like Traditional 401(k) or after-tax account, like Roth 401(k). Put simply, this decision generally comes down to your marginal tax rate now versus marginal tax rate in the future (which isn't something easy to predict due to the ever-changing tax landscape).
2. Account allocation. It becomes equally important where exactly you are investing. Roth accounts grow tax-free and qualified withdrawals are tax-free. You likely don't want to hinder that growth by choosing conservative assets (like fixed income, Money Market Funds, and so on).
Tax-efficient fund placement becomes extremely important when you also have a taxable brokerage account, along with tax-advantaged accounts. Many funds pay dividends and distribute capital gains if placed in your taxable brokerage account. At the end of the year, you receive a 1099 with that income and must pay taxes on the dividends and certain distributions.
One thing to call out from history is that you generally shouldn't hold Target Date Retirement mutual funds (or any "proprietary" funds) in your brokerage account. This is because unexpected redemptions could cause a huge tax bill.
You may remember a Vanguard 2021 fiasco where Vanguard opened an institutional TDF to more investors (lowered the minimum investment from $100M to $5M), which caused smaller retirement plans to sell out of individual funds and move into the institutional fund. This triggered massive unexpected capital gains for anyone invested in the individual funds if held in a brokerage account.
All of those unnecessary taxes could've been avoided by:
Let me give you a simple example:
Letâs say you are in a 22% federal tax bracket and a 5% state tax bracket, and you have some money invested in a dividend fund like Schwab US Dividend Equity ETF (SCHD). SCHD dividends are generally qualified, which means that the dividends get preferential treatment at a 15% federal tax rate for this investor.
The dividend yield is 3.43%. Considering the tax rates, the tax drag is (15% + 5%) * 3.43% = 0.686%.
To put this in perspective, a $10,000 investment will yield ~$343 in annual dividends. The tax impact on that investment will be $60.86.
Of course, if that money was in a Roth IRA, you would pay $0 in taxes on dividend distributions. Alternatively, this is something you may need to decide whether a dividend-focused investing strategy is the right one for you. For example, a Total US Stock Market ETF could have almost 3x less tax drag, and potentially more growth.
As someone in their 20s (who is subject to the Net Investment Income Tax) my focus is 100% on a growth investment strategy, rather than income generation. For someone in their 60s, that strategy could be different (even though selling shares for capital gains is better from a tax timing point of view).
A few more important points:
REIT stocks/ETFs are the least tax-efficient asset class to hold in a brokerage account because their distributions arenât qualified, so you pay more tax (even though it may qualify for a 199A deduction).
Stocks that donât pay dividends are the most tax-efficient to hold within your taxable account (Adobe, Amazon, Netflix, and others). However, holding individual stocks may not be the best strategy from an investment and diversification standpoint.
A big benefit of a taxable account is that the money is always easily accessible (liquidity), and you can control your withdrawal timing. While there are strategies that allow you to withdraw from retirement accounts before age 59 (like Rule of 55, 72(t) SoSEPP, Roth conversions), a brokerage account is more flexible. Therefore, analyzing the contributions and investments that go into this account is crucial.
How do you maximize tax efficiency? Let us know in the comments!
Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.
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