Asset Location: The Overlooked Strategy That Can Elevate Your Wealth Plan

By Jerett DiMarzio, CFP®, CPWA® – Partner and Wealth Advisor, Cornerstone Wealth

When building a strong investment strategy, most people focus on what they’re investing in—stocks, bonds, alternatives. But very few ask where those investments live—and that’s where asset location comes in.

In fact, a key part of comprehensive portfolio management is understanding how the management of your assets across different account types can be just as impactful as diversification.

It’s underutilized in accumulation planning but can significantly improve after-tax returns without increasing risk. Think of it as the strategic twin to diversification. One spreads out risk. The other maximizes efficiency.

Asset Allocation vs. Asset Location

Quick refresher—because this is important:

• Asset allocation: Divvies your investments across asset classes (stocks, bonds, cash, etc.).

• Asset location: Where you place those asset classes—specifically, which types of accounts you hold them.

When planning asset allocation, always consider how taxable accounts will impact your overall strategy.

Each account type comes with its own tax rules, so choosing the right investment strategy for asset location can significantly impact long-term growth and enhance tax efficiency.

The Three Buckets: Tax-Deferred, Tax-Exempt, and Taxable Accounts

At a high level, most of your investment accounts fall into one of three categories:

1. Tax-Deferred Accounts

(Traditional IRAs, 401(k)s, SEP IRAs)

These accounts grow tax-deferred, meaning you won’t pay taxes until you withdraw the money, typically in retirement.

Because you’re deferring taxes, this is a smart place to put income-generating investments and consider capital gains that would otherwise be taxed annually at your ordinary income rate.

Translation: This bucket is least sensitive to tax drag. Use it for assets that create regular, taxable income.

2. Tax-Exempt Accounts

(Roth IRAs, Roth 401(k)s)

These tax-exempt accounts grow completely tax-free if the rules are followed. That makes them a perfect home for your highest-growth assets (like small-cap stocks or emerging markets), which may experience the biggest long-term appreciation.

Translation: Maximize the power of tax-free growth. Put your long-haul growth assets here.

3. Taxable Accounts

(Brokerage accounts, joint investment accounts)

These accounts are taxed annually on interest, dividends, and realized capital gains. Because of that, they’re best suited for investments that prioritize tax efficiency, such as index ETFs, individual growth stocks, mutual funds, private equity, or municipal bonds.

Translation: Think tax control. Use taxable accounts for investments that let you manage capital gains or enjoy favorable tax treatment.

A disciplined approach to taxable accounts can dramatically enhance the overall tax efficiency of your portfolio.

Strategic Takeaway: Match the Asset Location to the Account

If there’s one thing I’ve learned in this business, the order of operations matters. And that applies here, too.

Here’s the simplified framework we often use at Cornerstone Wealth:

• Tax-Exempt = Max Growth

• Taxable = Most Tax Controlled

• Tax-Deferred = Least Tax Sensitive / Income Focused

Remember, asset location is not just about where your assets reside; it's also about how you leverage each account type to maximize after-tax growth.

Each investment has a “best-fit” home, and when you align them accordingly, your plan runs smoother, grows stronger, and pays fewer unnecessary taxes along the way.

Even Fidelity Says So

Don’t just take my word for it. In a recent article by Fidelity, titled "Are you invested in the right kind of accounts?" they break down how effective asset location strategies can help reduce taxes and increase after-tax wealth.

Fidelity's research also emphasizes the importance of structuring taxable accounts effectively to improve after-tax returns.

Their analysis aligns with what we’ve been helping clients implement for years: tax-smart investing isn’t about complexity—it’s about strategy.

Why This Matters in the Accumulation Phase

Asset location becomes even more critical during accumulation, when you're actively building wealth and contributing to various accounts, including tax-deferred accounts, tax-exempt accounts, and taxable accounts.

Every dollar you invest has a job to do, and putting it in the right environment as part of a sound investment strategy means more growth, less tax drag, and better outcomes.

If you’re saving across multiple account types (401(k), Roth IRA, taxable accounts, mutual funds, actively managed funds, etc.), you need an investment strategy that includes asset location. Otherwise, you’re leaving efficiency and growth on the table.

Ready to Take a Smarter Approach?

As a partner and wealth advisor at Cornerstone Wealth, I’ve seen how this single shift can make a measurable difference.

With comprehensive portfolio management services that include proactive tax planning and a focus on optimizing taxable accounts, I can help ensure that every investment is in its proper place.

If you’ve ever thought, “I’ve diversified—what’s next?”... refining your investment strategy is it.

📅 Let’s connect.

I’ll help you assess whether your investments are in the proper accounts and map out a plan tailored to your tax picture and long-term goals.

Our expertise in managing taxable accounts ensures that your portfolio is both tax-efficient and aligned with your financial objectives.

Jerett DiMarzio, CFP®, CPWA® Partner and Wealth Advisor Cornerstone Wealth

Helping clients build smarter portfolios, one strategic move at a time.

This is for informational purposes only and does not serve as personal advice. Please speak to a qualified representative regarding your unique circumstances. Links within this blog are not associated to Cornerstone Wealth and are subject to change. Hyperlinks will take you to a third-party website whose content Cornerstone Wealth does not control. Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser.