Asset location
Deciding which account holds which asset, rather than what to own. Where income is taxed more heavily than deferred gains, tax-inefficient assets such as bonds belong in tax-advantaged accounts.
Where you will meet it
Asset location appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Set out the constraints that an investment policy statement records
“Tax considerations affect asset location and turnover.”
- Explain how tax-efficient different asset classes tend to be and propose tax-management techniques for allocating assets
“Techniques include asset location (holding tax-inefficient assets in tax-advantaged accounts), deferring realisations, harvesting losses to offset gains and selling the highest-cost lots first.”
- Explain how taxes shape both the choice of asset allocation and the approach to rebalancing
“Asset location matters: place tax-inefficient assets such as taxable bonds in tax-deferred accounts, and tax-efficient assets in taxable accounts.”
See also
Practise it
Practise asset location until it is automatic: questions that explain every wrong option.
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