Most investors are familiar with asset allocation, which is how a portfolio is divided among stocks, bonds, and other asset classes. Asset location deals with where the various assets are held - taxable accounts, tax-deferred accounts (401k, IRA), and tax-exempt accounts (ROTH IRAs and ROTH 401ks). There are 2 factors to consider in deciding Asset location - tax efficiency and expected returns. In general, tax-efficient investments such as stock index funds, tax-free bond funds, and low expected-return investments should go into taxable accounts, while tax-inefficient assets such as taxable bond funds and other income-producing assets are best held in tax-deferred. Assets with high expected returns are best held in tax-exempt accounts. The exact strategy depends on an investor's personal situation. Research from several large Mutual Fund companies indicates that a properly executed Asset Location Strategy can reduce lifetime taxes paid on investments by up to 20%.