Wondering where you should park your investments? That's a
good thing to wonder, because you can save yourself a lot of
money by
employing a little strategy. Be careful, though, because
not all the advice out there will serve you best.
For example, below are some typical rules of thumb on the
best places for certain types of investments. Know that a
taxable account would be something like your regular
brokerage account. Your traditional IRA or 401(k) plan is a
tax-deferred account. And a
Roth IRA is a tax-free one.
Here's the logic behind these rules:
But hold on ...
Making the best decision isn't always as simple as
following these rules of thumb, though. For example, are
taxable accounts really the best places for long-term stock
holdings and dividend-paying stocks? It's true that they have
favorable tax rates now, but will they last? Many see tax
rates rising in the near future.
Next, even if these investments are being taxed at a lower
rate, they can be such powerful growers that even a low tax
rate can result in a substantial hit. Check out the
following, for example:
Company
CAPS
Stars(out of 5)
20-Year Avg. Annual Return
$10,000 Invested 20 Years Ago
Becomes
15% Tax on Gain
Cisco Systems (Nasdaq: CSCO)
****
33%*
$2.4 million*
$358,000
Best Buy (NYSE: BBY)
**
29%
$1.62 million
$241,000
Altria (NYSE: MO)
****
14%
$137,000
$19,000
Caterpillar (NYSE: CAT)
****
14%
$125,000
$17,300
Procter & Gamble (NYSE: PG)
***** Continued... |