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1.
Mutual funds with a lot of turnover are best for _______.
Tax-sheltered accounts. Mutual funds with a lot of turnover generally generate a load of capital gains that investors cannot control, and are therefore best suited to tax-sheltered accounts.
2.
Stock investors can exert more control over capital gains than bond investors by simply holding on to their stocks.
True. Given that bonds have to mature at some point, you can hold onto stocks longer than you could with many bonds.
3.
If you're holding cash in an emergency fund, makes sense to place it into _______.
A taxable account. If you're holding cash for near-term income needs or as an emergency fund, it makes sense to hold it in a taxable account because you may need access to the cash quickly and without penalty.
4.
Investing from a tax perspective often contradicts its practicalities. One example of why is that _______.
Investors often hold long-term stocks in tax-sheltered accounts even though those stocks are taxed at low capital gains rates. From a tax perspective, it doesn't make sense to do this. But practical reasons override that.
5.
Income from cash investments is taxed at _______.
Ordinary income tax rates. For this reason, it might make sense to keep your cash in tax-sheltered accounts; however, cash's value as a way to meet near-term needs means most people will keep it in taxable accounts for easier access and lack of withdrawal penalties.
