What is asset location, and how do I place funds tax-efficiently across accounts?

Asset location is the practice of holding different investment types in the accounts where they're taxed most lightly. The idea: put tax-inefficient assets – bonds, REITs, actively managed funds that throw off ordinary income and frequent distributions – inside tax-sheltered accounts like a traditional 401(k) or IRA where that income grows untaxed. Keep tax-efficient assets – broad stock index funds and ETFs that generate mostly qualified dividends and long-term gains – in your taxable brokerage account. Put the assets with the highest expected growth in a Roth, since Roth withdrawals are tax-free forever. Done across your whole portfolio, this can add a meaningful amount to after-tax returns without changing your overall stock/bond mix. It matters more the higher your tax bracket and the larger your taxable holdings.