Dear Dagen: Bush's Tax Cut and Your Portfolio

An issue I am not seeing much analysis of is what investments are appropriate for an IRA or other tax-advantaged account now that long-term capital gains and dividends are taxed more favorably. Intuitively, it seems we should put bonds or real estate investment trusts into tax-deferred accounts and put anything with long-term gains and dividends into taxable accounts. Alternatively, and more dangerously, we could use our IRAs as short-term trading accounts. I'd appreciate your thoughts. -- Steve C.

Taxes shouldn't be the first thing you think about when you invest. But they should come in a close second. First decide what you want to own; then you can think about where to put those investments.

"You should be thinking about how you arrange different instruments between tax-deferred and taxable accounts," says Fran Kinniry, a principal in investment counseling and research at Vanguard. "Asset location is as important as asset allocation." ...