Few people have managed to avoid big losses over the past year. But rather than simply giving up and walking away from the stock market, a tough economic environment requires that you double your efforts and prioritize where your savings will do the most good.

Still, it's tough to know exactly where you should put your investing dollars right now. With so many demands on your money -- along with the uncertainty of whether you'll stay employed and maintain your income in the near future -- you're probably having trouble saving as much as you'd like.

So if you don't have enough savings to cover all your bases, you'll want to be smart in prioritizing. To help make the best decisions, here are some recommendations for the four top places where your savings will do you the most good.

1. Feed your 401(k).
A penny saved may be a penny earned. But if someone's willing to add an extra penny to the one you save, then saving becomes a no-brainer.

That's what employer matching essentially does for you. Despite an increasing number of companies that have suspended their 401(k) matches, you still should take advantage if you're one of the lucky ones. At the very least, contribute enough to max out your free money.

2. Ride your Roth.
Roth IRAs give you a benefit no other investment does: tax-free growth for as long as you keep money in your account. In addition to Roth IRAs, some workers have access to Roth-style plans in their 401(k)s -- so consider that option carefully if it's available.

With tax time upon us, you may be drawn to regular IRAs that can give you an immediate tax deduction. But because most investors will likely be in higher tax brackets when they retire, giving up that deduction to set up a Roth often makes more sense than paying higher taxes later.

3. Hire an IRA.
Although they only defer tax rather than eliminating it, traditional IRAs give you a valuable benefit: a current tax deduction. You won't avoid tax forever -- the money you take out will get taxed -- but it's still a valuable benefit.

4. Keep it taxable.
Your regular brokerage account is actually the best place for some investments. Once you max out contributions to tax-favored accounts, moreover, bulking up the rest of your portfolio can pay dividends in more ways than one.

How to invest
Once you have these accounts set up and funded, the next task is figuring out how you should invest each one. Here's a quick list of guidelines:

  • With 401(k) plans, you often don't have much choice where to invest. If your plan offers a good stock index fund, use it.
  • Roth and traditional IRAs offer a lot more flexibility in choosing investments. For Roth IRAs, I prefer to focus on top growth prospects, especially among investments whose dividends may not get preferential tax treatment. In traditional IRAs, fixed-income bonds and other investments that produce a lot of regular income fit nicely. Also, stocks you don't intend to hold for the long term fit well in IRAs.
  • For taxable accounts, the best fit is a stock that doesn't pay a lot of dividends and that you plan to hold for a long time. That way, you don't suffer much from the lack of tax deferral -- and in fact, you may benefit due to preferential rates on capital gains that don't apply to traditional IRAs.

As an example, here's a list of various types of stocks, along with where they would go based on the rules above for someone in a high tax bracket:


Best Account?


Dolby Labs (NYSE:DLB), Quality Systems (NASDAQ:QSII)


With growth stocks that you may want to trade in and out of, you make the most of tax-free Roths.

Vornado Realty Trust (NYSE:VNO)

Traditional IRA

REITs don't get lower dividend tax rates, and they pay out most of their earnings, which limits growth.

Johnson & Johnson (NYSE:JNJ), McDonald's (NYSE:MCD)

Traditional IRA or Taxable

Current low taxes on dividends and capital gains in a taxable account make this a tossup.

iShares Barclays TIPS (NYSE:TIP)

Traditional IRA

Bonds benefit from tax deferral.

Adobe Systems (NASDAQ:ADBE)


No dividends and low capital gains rates make long-term value plays good for taxable accounts.

Of course, your own situation may vary. Depending on what tax bracket you're in and other factors, you may want to reallocate investments in different places.

The key, though, is to make sure you start investing somewhere. You may not save all you want, but your financial security depends on doing what you can.

For more on making the most of savings options, read about:

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Fool contributor Dan Caplinger uses all of those investment options when he can. He doesn't own shares of the companies mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor selection. Dolby Laboratories and Quality Systems are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is good in any market.