Test your knowledge

Choose wisely. There is only one correct answer to each question.

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1.
Stock funds with very lower turnover ratios would do best in _______.
Choose wisely. There is only one correct answer.
A taxable account. The low turnover rate would make them fairly tax friendly to a taxable account.
2.
It's always best to put your stocks in a tax-deferred account and your bonds in a taxable account.
Choose wisely. There is only one correct answer.
False. Although this rule may hold for certain long-term investors, there are too many exceptions to make it a hard-and-fast rule.
3.
Which statement is correct?
Choose wisely. There is only one correct answer.
In many cases, you should own stocks in tax-deferred accounts and bonds in taxable accounts, especially if you're investing for 15 years or longer. If you're investing long enough, the higher total returns of stocks over time generate a greater tax burden than the income of bonds.
4.
Where would be a wise place to put large-company index funds?
Choose wisely. There is only one correct answer.
A taxable account. Large-company index funds tend to be pretty tax-efficient anyway.
5.
David has 10 years until retirement. He's in the 28% tax bracket now and expects to be in the 31% tax bracket once he retires. What should he do?
Choose wisely. There is only one correct answer.
Place bonds in his tax-deferred accounts and stocks in his taxable account. Because David is less than 15 years away from retiring and he expects to be in a higher tax bracket upon retirement, he should hold stocks in his taxable account and bonds in his tax-deferred accounts.