|Of course, studies are merely that--studies. They don't always reflect your real-world situation. For example, these studies don't address what an investor who is 100% in stocks ought to do.
A few rules of thumb for all-stock investors:
- Place individual stock holdings that you plan to hold for a long time in your taxable account; hold shorter-term stock investments and stock mutual funds in your tax-deferred account.
- Place stock funds with very lower turnover ratios--say, below 20% per year--in your taxable account and those with higher turnover ratios in your tax-deferred account.
- Place large-company index funds in your taxable account--they tend to be tax friendly.
(We'll cover more options for taxable accounts in Portfolios 206: The Best Investments for Taxable Accounts.)
Moreover, the study doesn't touch on the quality of the fund choices available within the tax-deferred plan. Say your retirement plan offers only two choices: a highly rated large-cap index fund or a poorly rated high-turnover small-cap fund. If you listened to the study, you'd probably choose the small-cap fund for tax reasons--even though it's not the better investment overall. Don't let taxes considerations overshadow the quality of an investment.