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How to Make Your Money Work Harder

http://www.fool.com/retirement/general/2011/10/06/how-to-make-your-money-work-harder.aspx

Dan Caplinger
October 6, 2011

Many investors spend all their time worrying about which stocks, mutual funds, and other investments they should buy. But often, figuring out where you should own your investments is even more important than what you invest in. By choosing the best place for each investment you make, you'll go a long way toward increasing your overall returns.

Where should it go?
In this month's brand new issue of the Fool's Rule Your Retirement newsletter, which hits the digital presses this afternoon at 4 p.m. ET, Foolish retirement expert and financial planner Robert Brokamp takes his readers on a five-step journey to take control of their financial destiny. By transforming your portfolio from a hodgepodge of different accounts and investments into a cohesive whole, you won't just get better results -- you'll better understand the whole purpose behind investing in the first place.

In coming up with a financial plan you can live with, you have to understand yourself and your current investments, and deciding what mix of investments you want is definitely important. But an often-neglected aspect of planning comes when you decide how to allocate money across the different types of accounts available to investors today.

A true hodgepodge
To illustrate just how easy it is to get disorganized, here's a sample of the types of accounts you might have somewhere in your portfolio:

  • If you trade stocks or exchange-traded funds, then you probably have at least one brokerage account. Many people have additional accounts for IRAs.
  • Often, mutual fund accounts are separate from brokerage accounts, especially if you buy funds directly a fund company. That can mean one statement each from every different fund family you own.
  • If you have a 401(k) or other work-based retirement account, that's another place for your money.
  • Many other investments, such as savings bonds and precious metals coins, involve holding physical pieces of paper or bullion. So add a safe deposit box to all those accounts, and you'll have a sense of just how complicated your finances can get.

Obviously, keeping track of your investments gets exponentially more difficult when you have a larger number of accounts. But you can still do it -- and doing so successfully is a key component of making your money work harder for you.

Building placement into a strategy
Simplifying your holdings makes it easier to track your overall financial progress. But being smart about which investments you put into various accounts doesn't just make your money matters simpler -- it also can save you thousands in taxes.

For instance, in the current issue, Brokamp suggests some smart ideas for placing assets where they'll do you the most good:

  • For regular accounts, taxes matter. With long-term capital gains taxed at preferential low rates, putting low-yielding stocks like Amazon.com (Nasdaq: AMZN  ) and WellPoint (NYSE: WLP  ) into your regular accounts makes it easy to manage your tax bill. In addition, naturally tax-deferred investments like savings bonds and municipal bonds belong here.
  • Traditional IRAs shelter your income but are subject to tax when you withdraw money at retirement. They make ideal places for highly taxable investments like the i