I understand tax efficient fund placement and I’m doing what I can with those strategies to minimize taxes now and in the future. But what I am still not understanding is why so few people are in favor of holding investment-grade corporate bonds and/or treasuries in taxable accounts. Even though they are relatively tax inefficient, they do produce income—albeit taxed as ordinary income. But so do CDs, money market accounts, and high-yield savings accounts, and no one seems to recommend against those in taxable accounts.
For retirees looking for steady income and relatively lower risk, investment grade bonds seem to be a reasonable choice. A stock index fund might be more tax efficient (capital gains vs. ordinary income) but there’s so much volatility, and one can’t be sure that principal will be there when it’s needed.
And what about those of us just looking for a place to park $100k or $200k in cash? If someone were to offer a CD paying 3% interest right now, most people would jump on that as a great place to stash cash—and yet, it would be taxed as ordinary income, same as a bond fund. What’s the difference?
Have I misunderstood the reasoning?
Thanks!
For retirees looking for steady income and relatively lower risk, investment grade bonds seem to be a reasonable choice. A stock index fund might be more tax efficient (capital gains vs. ordinary income) but there’s so much volatility, and one can’t be sure that principal will be there when it’s needed.
And what about those of us just looking for a place to park $100k or $200k in cash? If someone were to offer a CD paying 3% interest right now, most people would jump on that as a great place to stash cash—and yet, it would be taxed as ordinary income, same as a bond fund. What’s the difference?
Have I misunderstood the reasoning?
Thanks!