When it comes to investing, our main priority is that it makes us money. We want it to grow through share appreciation, dividends and capital gains. Unfortunately, many investors don’t take into account taxes as they should. As a result, they end up not growing their portfolios as much as they potentially could. In this post, I will walk you through how to structure your portfolio so that you can save money on taxes and as a result, grow your portfolio to larger amounts.

How To Structure Your Portfolio To Save Money


When investing in bonds, you want to make sure that any bond or bond fund that you invest in that is not government or municipal backed is in a retirement account. This is because corporate bonds pay monthly interest that is taxed the same as ordinary income.

So if you are in the 25% tax bracket and your corporate bond fund pays you $100 this year and it is in your taxable account, you owe $25 in taxes. If that same corporate bond fund were in your retirement account however, you would not owe anything to taxes.

For government bonds and municipal bonds, most are tax free, meaning you won’t pay taxes on any of the interest you earn. Because of this, it makes sense to invest in these instruments in your taxable account. Just make sure you confirm that the interest is tax free before going this route. Some municipal bonds may be state income tax free but the federal government will still tax them.


Equities throw off two common forms of income: dividends and capital gains. Luckily both are taxed at special rates, which are lower than the rate for ordinary income tax. As a result, you want to be smart about how you invest in these.

Even though the tax rate is lower, you want to put any non tax efficient investment in your retirement account and the more tax efficient instruments in your taxable account. For many, this means a larger percentage of small cap equities in retirement accounts and more large cap equities in non-retirement accounts.


When it comes to investing in REITs, you want to hold these in your retirement account as well. This is because they are required to pay out 90% of their income to investors, so you know you will be earning money from them every year and that payment is taxed at ordinary income rates.

Because of this, you want these in your retirement account, just like with bonds so that you don’t owe tax on the money you earn.

Putting It All Together

Of course after reading this, you might have some questions. Should your retirement accounts only be bonds and REITs? The answer is no. You should first determine what your ideal asset allocation is and then see what types of accounts you have in terms of retirement and non-retirement.

From there, you want to start structuring your portfolio between these two. You can have bonds in your non-retirement account, but make sure there is a larger percentage of them in your retirement account.

When it comes to equities, invest in both large and small cap, just make sure you have more large cap in your non-retirement account and more small cap in your retirement account. You can still have both large and small cap equities in each type of account, just make sure they are weighted correctly. Doing so will ensure you keep more of your money and pay less in taxes.

Final Thoughts

When it comes to investing, don’t overlook taxes. They can do a number on your portfolios return. The more you structure your portfolio in a tax efficient way, the more money you keep invested and allow to grow over the long term. And thanks to compounding, that saved money will pay off big time in the years to come.