The Cash Flow Clock: For Retirees - Book - Page 80
The Cash Flow Clock
to get higher return. We want that higher return to be
tax free.
Asset location is a powerful tax planning tool that
seems to be rarely used by most investors or even
advisors. In many portfolios, risk allocation is the
only priority. This means that each account has a
similar mix of stocks, bonds, and mutual funds
regardless of how the assets are taxed. This makes
absolutely no sense. By simply locating our highest
risk assets in our Roth accounts, the lowest risk in tax
deferred accounts, and an appropriate mix in our
brokerage/non-qualified accounts, we can greatly
improve the efficiency of our portfolio.
The Cash Flow Clock helps us determine these tax
planning and asset location decisions. We may have
the perfect tax strategy in place, one that will reduce
our tax liability for our lifetime and our estate. But if
it does not meet our cash flow needs, then it is
worthless to us. Cash flow must be considered first.
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