For the best after-tax returns, investments with the biggest tax consequences should be sheltered in tax-deferred accounts such as a 401(k) or IRA. Among these are corporate bonds, bond mutual funds, and REITs, whose income is subject to income tax rates of up to 37%. Other good candidates for tax-deferred accounts are investments that generate short-term capital gains, such as actively traded stocks. Gains are considered short term if they’re realized within 12 months, and are taxed up to the 37% income tax rate.

Meanwhile, taxable accounts should hold the most tax-efficient investments, such as tax-exempt municipal bonds and separately managed investment accounts in which a manager actively harvests losses to offset gains and minimize taxes. Other investments in this camp include stocks held for the long term and mutual funds with low turnover rates, such as stock index funds.

— Read on www.barrons.com/articles/the-best-way-to-bankroll-your-kidswithout-ruining-your-retirement-51553287755

On CNBC Power Lunch, the commentators reported that several U.S. states are experiencing a problem of excess tax revenue, which all agreed is a great problem to have.  They also reported that the states’ dilemma is what to do with the excess collected tax revenue.  While some states have decided to give the excess back to tax payers in the form of a rebate; others have decided to reduce tax rates to their respective state’s taxpayers.

Another option states have employed is to add to their respective ‘rainy day fund’ that increases their dry powder for the inevitable economic downturn.

With a growing U.S. economy hovering about three (3) percent, high employment rates creating more taxpayers and all time highs in U.S. equity markets creating capital gains, states are reaping the benefits of record high inflows of tax revenues.

While attending a recent wine tasting featuring several wines from the Tuscan region of Italy, the conversation around the table drifted towards investing for retirement.  During the table talk, someone shared that they had recently met with their financial adviser to reallocate their retirement portfolio into less risky securities such as U.S. Treasuries and corporate bonds.

Given today’s interests rates and relatively low coupon rates on most Treasury and corporate bonds, my initial reaction was that moving assets out of equities and into bonds may prove less than a wise move depending on ones short and long term goals.

The volatility the U.S. equity markets experience in late December 2018 was frightening for both smart money and retail investors.  When financial pundits and business media were proclaiming the end of the bull market and the advent of global economic recession, it is understandable why many investors “threw in the proverbial towel” and reduced their exposure to U.S. equities.

Dependent on ones short and long term goals, abandoning equities in ones portfolio of investments may be an incorrect move. If ones long term goal is to save for retirement in ten or more years, time in and staying invested in the equity market remains the best investment strategy for achieving above average returns while realizing below average risks.

Bottom line, to achieve one long term financial goals of retirement, time in the market is paramount.  From my humble viewpoint, reallocating one’s portfolio to lower return securities puts an investor at a greater risk of not meeting their long term retirement goals.

The first rule of saving and investing is to stop losing money and end bad spending habits.

It is imperative to stop doing the old, ineffective things. An investor must first identify what is no longer working and secondly, stop doing what is no longer working.

It is the presence of the of old bad habits that keeps savers from experiencing new positive financial behaviors.