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August 17, 2012 - When Taxes Collide With Your Asset Allocation - by Morningstar Investment Research

Many investors hold a third type of asset--taxable assets where you won't owe taxes on your basis--the amount you put in--but you will owe tax on any dividends, income, and capital gains your accounts generate over the time you hold them. Those dividend, income, and capital gains taxes are less predictable than the taxes you'll owe on distributions from your traditional IRAs and 401(k)s, but some experts suggest that it's reasonable to assume a similar tax haircut for taxable assets as you do for what you hold in your traditional IRAs and 401(k)s. Those tax repercussions underscore the impo rtance of factoring tax effects into your analysis of your own asset allocation, just as you should factor the tax effects into your evaluation of your own retirement readiness. Before you invest too much time in the number-crunching, however, Morningstar director of personal finance Christine Benz says it's worth bearing a few caveats in mind, which in turn can help you decide how much weight to place on this issue.

4 Best Practices When Self-Insuring for Long-Term Care

"I plan to self-insure." That statement, or some variation of it, was a frequent refrain from many posters in the Comments field below my recent articles on long-term care. You often hear that individuals with $2 million or more in assets can self-insure for long-term care because they can likely cover nursing- or in-home-care costs by dipping into their own nest eggs. $2 million isn't what it once was, however, particularly given rapidly rising long-term care costs, longevity rates, and increasing rates of dementia and Alzheimer's disease among the elderly. Yet saying you'll insure for long-term care is one thing; actually doing it is another. If you've decided to cover long-term care costs out of pocket, how much shoul d you reasonably set aside to cover such expenses, and in what vehicles should you invest the money?

Among the other topics we addressed this week:

Patient Investors Should Place Facebook on Their Radar. While we continue to be cautious and expect deceleration in revenue growth and contraction in operating margins, the stock is close to a level where we would recommend considering an investment.

Will Reform Follow Facebook's IPO Fiasco? The reforms prompted by Facebook's failed private offering in 2010 could make problems associated with its recent public offering more likely to be repeated.

The Quality Dividend ETF. It's not Warren Buffett in a box, but it's close.

Buffett's Lieutenants Continue to Impact Berkshire's Portfolio. Sales of legacy stock holdings highlight the changing of the guard at Berkshire.

Should You Buy Cash-Value Life Insurance? The ins and outs of these plans can get complicated, so take your time and know your alternati ves before signing up.

Our 5 Favorite 'Unloved' ETFs That Have Launched in the Past Year. These five funds have yet to attract much in the way of investor interest, but they're all worth a look.

T. Rowe Price Manager Planning to Step Down. Plus, BlackRock woos Putnam veteran, additional change at Marsico, Sentinel ups pay plan, and more.

Janus Grapples With Talent Losses. The firm's batting average on manager changes has been poor lately.

The Muni-Bond Technical Tango. Simmering credit worries are no match for muni investors' yield grab.

Tips and Traps When Retiring Overseas. Retiring overseas might save you some money, but cultural assimilation is key.

Mine for Values in These Sectors. Stocks in the basic materials, communication services, and energy sectors are providing some of the best opportunities in the market today.

Surprises Galore in Boring Old Emerging-Markets Funds. Even straightforward stock portfolios can take vastly different approaches.

A Solid, Tax-Free Income Provider (For Now). When looking at this Invesco muni fund, don't fall into a UNII-trap.

EDF's Moat Intact Despite Structural Changes. EDF has some big challenges on its hands, but its expertise, political clout, and size will keep the group on track and provide profitable growth for investors.

CenturyLink Heads Toward Modest Growth. While margins are likely to come under pressure as the top line stabilizes, cash flow should remain sound for the foreseeable future.

U.S. Steel Has a Sound Strategy, but Hurdles Remain. Although initiatives have promise, the economic backdrop gives us pause.

New Bond Issue Market Remains Unusually Active. New issue supply was easily swept up as investors continue to pour money into corporate bond funds.

No Margin of Safety in These Stocks. The runup in stock prices has all but erased the margin for error in many parts of the market.

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