Let's say, I hold three ETFs: E1, E2, E3, with E1 has the lowest risk/return and E3 has the highest risk/return.

I also have three accounts: A_reg is the regular savings account, A_ira is retirement savings account and A_corp is an account that belongs to my corporation (I am self employed).

Assuming (for simplicity) that valueOf(E1) = valueOf(E2) = valueOf(E3) and that an ETF is to be allocated per account - how should I make the allocation and why?

  • What do you mean by E1=E2=E3? I thought they were different ETFs. Do you mean the current value of your holdings in each ETF is the same?
    – BrenBarn
    Commented Apr 5, 2016 at 15:53
  • Yes, that is exactly what I mean, thank you for your correction Commented Apr 5, 2016 at 17:10

2 Answers 2


I believe the answer to your question boils down to a discussion of tax strategies and personal situation, both now and in the future. As a result, it's pretty hard to give a concrete example to the question as asked right now.

For example, if your tax rate now is likely to be higher than your tax rate at retirement (it is for most people), than putting the higher growth ETF in a retirement fund makes some sense. But even then, there are other considerations. However, if the opposite is true (which could happen if your income is growing so fast that your retirement income looks like it will be higher than your current income), than you might want the flexibility of holding all your ETFs in your non-tax advantaged brokerage account so that IF you do incur capital gains they are paid at prevailing, presumably lower tax rates. (I assume you meant a brokerage account rather than a savings account since you usually can't hold ETFs in a savings account.)

I also want to mention that a holding in a corp account isn't necessarily taxed twice. It depends on the corporation type and the type of distribution. For example, S corps pay no federal income tax themselves. Instead the owners pay taxes when money is distributed to them as personal income. Which means you could trickle out the earnings from an holdings there such that it keeps you under any given federal tax bracket (assuming it's your only personal income.) This might come in handy when retired for example. Also, distribution of the holdings as dividends would incur cap gains tax rates rather than personal income tax rates.

One thing I would definitely say: any holdings in a Roth account (IRA, 401k) will have no future taxes on earnings or distributions (unless the gov't changes its mind.) Thus, putting your highest total return ETF there would always be the right move.


Ok, so here's the strategy I decided to go with in the meantime: Allocate E1 to A_corp and E3 to A_ira. Here are my considerations which I assume at this stage to be right:

  • Money grown in the corp account will be taxed twice, the bulk of return is to be made on compound interest, thus the investment in corp account should be with the lowest return
  • Money grown in the A_ira will be the least taxed, thus the investment in A_ira should be with the highest return

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