Taxes Have a Role in Asset Allocation

Most of us pay heed to the basics of asset allocation -- placing your investments in a variety of different assets, such as large company stocks, small company stocks, bonds and real estate, to maximize returns and minimize risk.

But chances are you haven't given much thought to the location of your investments. Namely, whether they sit in your tax-sheltered 401(k) and IRA, or reside in taxable accounts with a brokerage house or mutual fund.

Three professors of finance have given the issue serious consideration. They've concluded that putting bonds in tax-sheltered retirement accounts and stocks in taxable accounts can over time boost your portfolio by as much as 15% to 20%. ...