Sunday, June 7, 2026

Why Asset "Location" Matters More Than You Think

Most investors focus on what to buy — stocks, bonds, the classic 3‑fund portfolio. But very few think about where those investments should live. And that “where” quietly affects your taxes every single year.

I’ve written before about how smart asset location can boost long‑term returns. I also compared my approach with what Google Gemini suggested for the same $1 million sample portfolio. This time, I wanted to make the whole idea more hands-on. So I built an interactive Asset Location Optimizer using Google AI Studio.

The tool takes three ETFs — VTI, VXUS, and BND — and figures out the most tax‑efficient way to spread them across a Taxable account, Roth IRA, and Traditional IRA. It reads your balances, applies your target allocation, and shows you exactly how much tax drag you’re paying today versus what you could be paying.

In the sample case, the optimized setup cuts annual tax drag from $1,674 to $585 — a savings of $1,089 per year. Let that compound for 30 years, and it adds up to $195,691 in extra wealth.

The logic behind the tool is simple:

Bonds (BND) go in the Traditional IRA because bond interest gets taxed at ordinary income rates.
International stocks (VXUS) go in the Taxable account to capture the Foreign Tax Credit.
US stocks (VTI) go in the Roth IRA to maximize tax‑free growth.
Any leftover VTI fills the remaining space.

You still end up with the same overall 48/12/40 allocation — just arranged in a smarter way.

I built the entire app using prompts (aka vibe coding) in Google AI Studio, and it turned out to be a great educational tool. It makes asset location visual and intuitive, and it shows how much taxes quietly eat into returns. It’s not a replacement for a CPA or a CFP, but it’s a great way to understand the power of putting the right assets in the right accounts.

The screenshots below show the tool in action. The tool also includes an AI Chat Advisor that explains the math, tax logic, and withdrawal strategies.

Disclaimer: This article is not intended to be investment advice. Consult a duly licensed professional for investment advice. The contents of this article are for educational purposes only and do not constitute financial, accounting, tax, or legal advice. Past performance is no guarantee of future results.

Tuesday, March 17, 2026

I Gave Three AI Tools the Same Simple Prompt. Only One Got It Right on the First Try.

In an earlier post, I explored how thoughtful asset location can improve the long‑term after‑tax return of a 3‑fund portfolio. As part of my ongoing experiments with modern AI tools, I decided to test how well they could recommend asset locations for the same sample $1 million portfolio.

The next section shows the exact prompt I used and the response generated by Google Gemini.

Prompt:

You are an experienced financial planner. I am getting ready to retire. My portfolio consists of the following accounts: Taxable $100,000, Roth IRA $50,000, Traditional IRA $850,000, Total $1,000,000. My desired asset allocation: Stocks 70% (20% of this in International stocks), Bonds 30%. I only want to use low-cost index funds and no actively managed funds. Please recommend which funds and what amounts should be placed in which account(s) i.e. taxable, Roth IRA, Traditional IRA to maximize long-term after tax return.

Response:

To maximize your long-term after-tax returns while maintaining your 70/30 asset allocation, you should prioritize asset location. This strategy involves placing less tax-efficient assets (like bonds) in tax-deferred accounts and high-growth assets (like stocks) in tax-exempt or taxable accounts.

Asset Allocation Strategy

Based on your $1,000,000 portfolio and desired 70/30 split (with 20% of stocks in international), your target amounts are:

Total Stocks (70%): $700,000

U.S. Stocks (80% of stocks): $560,000
International Stocks (20% of stocks): $140,000

Total Bonds (30%): $300,000

Recommended Asset Location

Account	Amount	Asset Type	Recommended Low-Cost Fund Examples
Taxable	$100,000	International Stocks	Vanguard Total International Stock ETF (VXUS)
Roth IRA	$50,000	U.S. Stocks	Vanguard Total Stock Market ETF (VTI) or Schwab S&P 500 Index (SWPPX)
Traditional IRA	$300,000	Total Bond Market	Vanguard Total Bond Market ETF (BND) or Fidelity Long-Term Treasury Bond Index (FNBGX)
Traditional IRA	$510,000	U.S. Stocks	Vanguard Total Stock Market ETF (VTI) or Fidelity 500 Index (FXAIX)
Traditional IRA	$40,000	International Stocks	Vanguard Total International Stock ETF (VXUS)

Strategic Rationale

Taxable Account (International Stocks): Placing international stocks here allows you to potentially claim the Foreign Tax Credit for taxes paid to foreign governments, which is lost if held in an IRA.
Roth IRA (U.S. Stocks): This account provides tax-free growth. By placing U.S. stocks here—which generally have higher long-term growth potential than bonds—you maximize the value of the tax exemption.
Traditional IRA (Bonds): Bonds generate interest income that is taxed at ordinary income rates. Holding them here defers those taxes until withdrawal, which is more efficient than paying annual taxes in a taxable account.
Filling the Gaps: Since your Traditional IRA is your largest account ($850k), it must hold the remainder of your U.S. and International stock allocations after the Taxable and Roth accounts are filled.

Execution Note

Rebalancing: It is easiest to rebalance within your Traditional IRA since selling and buying assets there does not trigger immediate capital gains taxes.
Low Costs: All recommended funds (VTI, VXUS, BND, etc.) have extremely low expense ratios (typically 0.03% to 0.08%), satisfying your requirement for low-cost index funds.

My Observations on the Prompt and the Response

As you can see, the prompt is simple and direct. It avoids technical jargon like “asset location,” while still conveying the key details about the responder (a financial planner), the requestor (approaching retirement), and the portfolio.

The response is similarly clear and direct, and even offers strategic rationale - despite my not explicitly asking for it. Importantly, its asset location recommendation aligns with the suggestions in my earlier post (see screenshot below).

I also ran the exact same prompt through Microsoft Copilot and ChatGPT. Neither produced the correct answer on the first attempt. They did get there eventually, but only after I pointed out both logical and arithmetic errors.

Improve Long-term After-tax Return on 3-fund Portfolio using Asset Location

Monday, August 4, 2025

Rethinking Global Exposure: How Much "International" Is Already in Your U.S. Stocks?

If you invest in three broad index funds - say, one for U.S. stocks, one for foreign stocks, and one for U.S. bonds - you’ve already embraced simplicity and diversification. But here’s a twist: did you know that nearly 30-40% of the revenue generated by S&P 500 companies comes from outside the United States?

From tech giants like Apple and Microsoft selling to global markets, to industrial firms navigating international supply chains, many U.S.-listed companies are anything but domestically confined. This raises a question that savvy investors are starting to ask: Should you factor this foreign revenue as part of your international allocation?

Let’s unpack it.

🌍 The Hidden Global Footprint in U.S. Stocks

While your U.S. index fund (like one tracking the S&P 500) is based on domestic listings, the companies within it often operate on a global scale. For example:

Information Technology sector: ~59% of revenue from abroad
Materials: ~47%
Industrials: ~32%
Utilities: Just ~2%

Clearly, not all sectors are created equal when it comes to foreign exposure.

So what does this mean for your portfolio?

🔄 Should You Adjust Your Allocation?

Possibly. Imagine your target allocation is:

60% U.S. stocks
30% international stocks or 33.33% of total stocks (30%/90%)
10% U.S. bonds

If 30% of your U.S. stock fund’s revenue comes from non-U.S. sources, your “real” international exposure might look like this:

Implicit exposure via U.S. stocks: 60% × 30% = 18%
Direct exposure from international fund: 30%
Total effective international exposure: 48%

This translates to an effective international exposure of 53% of your overall stock allocation (48%/90%). This may be in line with your goals or more than you intended.

As a point of comparison, the FTSE Global All Cap Index - covering approximately 7,400 companies across 47 countries - allocates around 58-60% to U.S. stocks, with the remaining 40-42% representing international equities, including both developed and emerging markets. If you consider the implicit exposure via U.S. stocks, the index's effective international exposure is 58-60%.

Some investors use this insight to adjust their direct international allocation, depending on their implicit exposure via U.S. stock funds.

🧮 Quick Tip to Rebalance

Here’s a fast method:

Estimate your U.S. fund's foreign revenue share (e.g., 30%)
Multiply that by its portfolio weight
Add it to your direct international allocation
Adjust to hit your desired global exposure

📌 Example: Let’s say that you have 60% of your portfolio in U.S. stocks and you want 30% international exposure. You already have 18% international exposure from U.S. stocks’ foreign revenue (60% × 30%). Then, you may only need 12% in direct international holdings. If you want 40% international exposure, you may need 22% in direct international holdings.

🧠 Why It’s Not a Perfect Substitute

Don’t ditch your international fund entirely. Revenue abroad doesn’t offer everything: foreign currency exposure, different regulatory environments, access to emerging markets, and local sector opportunities.

Think of your U.S. stocks as giving you indirect global participation - while your international fund adds true global diversity.

Bottom line: Use foreign revenue exposure as a tool for smarter allocation - but keep direct international investments for genuine global reach. It’s about refining your balance, not replacing it.

Wednesday, March 26, 2025

The Stock Market has (fill in the blank). What should I do now?

I often see this or similar questions posted on popular online investing and personal finance forums.

“The stock market has gone up (or down) a lot lately. What should I do now?” or “International stocks have not done much in the last 10 years. What should I do with them?” or "Is the recession coming? If so, what should I do?" or "Are we in the AI bubble? If so, what should I do?".

In most cases, the right answer to such questions may be “Do nothing”.

When such a question comes up in your mind, you do not need to rush to action based on a guess, a hunch or friend’s or expert’s recommendation. Take a deep breath and follow these steps to make your own rules-based decision, knowing that this strategy has always worked for long-term investors.

Step 1: Determine your Target Asset Allocation

Hopefully, you have already completed this step before starting your investing journey. If you have not, see the following post for details:

Using Vanguard Investor Questionnaire to determine your asset allocation

Note that this is an important prerequisite for this strategy to work.

Step 2: Determine your current Asset Allocation

If you have your accounts at Vanguard, you can use their Portfolio Watch tool to see your current asset allocation. The following post explains the Portfolio Watch tool in some detail:

Using Vanguard’s Portfolio Watch and Portfolio Tester for Rebalancing

Be sure to include your external (non-Vanguard) accounts in the Portfolio Watch as well. The above post explains how to do this.

Empower Personal Dashboard is another free tool that offers a streamlined way to view all your investment accounts in one place, giving you a clear picture of your overall asset allocation. For more details, just click the link above and explore the FAQ section at the bottom of the page.

Step 3: Rebalance (if necessary)

Lastly, if your actual allocation differs from your target allocation significantly (say, by 5 percentage points), it may be time to rebalance. Again, if you have your accounts at Vanguard, you can use their Portfolio Tester tool to help with rebalancing. The post mentioned in the Step 2 above explains how to use the Portfolio Tester tool.

If you find that there is no significant difference between your target and actual allocations, no action is required. However, if the gap is making you uneasy, it may be worth revisiting your target asset mix and rebalancing as needed to restore peace of mind.

Improve Long-term After-tax Return on 3-fund Portfolio using Asset Location

3 ways to take advantage of a market decline

Thursday, June 20, 2024

Practical Guide to Financial Freedom

Introduction

Financial freedom is not just a dream; it’s a journey that begins with understanding and taking the right steps. For high school and college students, this journey is especially crucial as it sets the foundation for a secure financial future. This short guide will walk you through the essential steps to achieve financial independence.

(Prefer audio? Find the audio summary at the end of this post.)

1. Pick the Right Field of Work

Ikigai is a Japanese concept that means “a reason for being.” It’s about finding joy, fulfillment, and balance in the activities that make up our daily lives. Finding your Ikigai is about aligning your passion, profession, vocation, and mission. It’s a delicate balance that, when achieved, can lead to immense personal and financial rewards. Consider these questions:

What do I love? What subjects or activities make you lose track of time?
What am I good at? What are the skills for which others often seek your help?
What can I be paid for? What jobs are available that align with your interests and skills?
What does the world need? How can your work contribute to society?

Combining these elements will lead you to a career that not only pays well but also brings satisfaction and a sense of purpose. Research industries and job markets to understand where your Ikigai may lie. Seek internships and part-time jobs in areas of interest to gain experience and insight.

2. Save 10%-20% of Your Net Income

The golden rule of personal finance is to pay yourself first. Before spending on anything else, set aside 10% to 20% of your net income. This habit ensures that you’re consistently saving for your future. To make it easier, automate your savings so that a portion of your income goes directly into your savings and investment accounts. I like to think of it as paying a monthly subscription fee to my future self, that will pay me back 2, 3, 4 or even 8 times the fee and provide financial freedom!

Saving is a habit that builds discipline and provides a safety net for future financial endeavors. By saving a portion of your income, you’re ensuring that you always have funds set aside for emergencies, opportunities, and investments. When you are just starting your first full-time job, you may start by saving 10% and gradually increase it to 20% (or more!) as your income grows. You can use this spreadsheet to track your expenses and savings. It has categories for must-haves (needs) and fun things (wants). It has a column for monthly goals and also provides a monthly summary to track your progress. You can tailor it to suit your needs.

3. Contribute to 401(k) or IRA and Make it Automatic

Retirement may seem far away, but the earlier you start saving, the better. If your employer offers a 401(k) plan, contribute enough to get the full match; it’s free money. If they don’t, open an Individual Retirement Account (IRA) and contribute regularly. These accounts offer tax advantages that help your savings grow more efficiently.

Retirement accounts like 401(k)s and IRAs are powerful tools for building wealth over time. They offer tax benefits that can significantly enhance your savings. Here’s why starting early matters:

The power of compound interest means the earlier you start, the more you’ll have.
Automatic contributions ensure you’re consistently saving without having to think about it.
Over time, the tax-deferred growth can lead to substantial tax saving.

Also see: The Automatic Investing Revolution

4. Invest in Low-Cost Index Funds or ETFs

Investing is how you turn your savings into wealth. Index funds and Index Exchange-Traded Funds (ETFs) are excellent options for just about everyone thanks to their low costs and diversified portfolios. The key is to invest for the long term. Resist the urge to sell when the market dips; those who stay invested are more likely to see their investments recover and grow over time.

When investing, remember to:

Start with at least 10% of net income and increase it as your income grows.
Avoid timing the market and stay invested through market ups and downs; consistent long-term investing is key.
As you approach your 50s, adjust your asset allocation and rebalance once a year if necessary.

Conclusion

Achieving financial freedom is a disciplined process that requires patience and persistence. By following these steps, you’re not just preparing for a comfortable retirement; you’re setting yourself up for a life where financial stress is not a constant burden. Start today, and watch your efforts compound into lasting financial well-being.

The key is to begin, savor the early successes, and then stay the course, allowing the power of compounding to work its wonders.

Q & A

Here are the answers to some of the common questions.

Q: These steps sound simple. So, why do half of families in the United States have no retirement savings? A: The steps may be simple but they are not easy. When you are young, retirement seems like a remote event. Instant gratification often trumps long-term thinking. Retirement planning, saving and investing don’t seem important until it's too late. In most states in the U.S., personal finance courses in school are not required. Some people lack the knowledge and motivation and are too overwhelmed to take the first step even though most of them are on their own with no pensions and inadequate social security. Also, during your 20s and 30s (when you should ideally start saving for retirement), other obligations such as student loan payments, a down payment for a home, children and family related expenses make it difficult to start saving and investing.

Q: How do I find a field of work that aligns with my Ikigai? A: Start by exploring your interests and strengths. Volunteer, intern, or work part-time in various fields to gain experience. For example, if you love technology, enjoy tackling tough problems or solving logic or math puzzles and have a knack for coding, consider a career in software development or a related field. If you are passionate about physical or mental health and love to help people, explore health related fields. Or one or more of these 20 occupations with high projected growth may spark your interest. It is also very important that you are always learning, no matter what field you choose. And, if you choose the field that you are passionate about, you will always be learning. Learning not only enhances your career but also promotes your overall wellbeing.

Q: What if my passion doesn’t pay well? A: Balance is key. You might have a passion that doesn’t pay well initially. In such cases, you can pursue it as a side project while working in a related field that does pay. Over time, you may find ways to monetize your passion or transition into it full-time. BLS is a good source of information about the outlook for various occupations. Here are the 20 occupations with the highest projected percent change of employment between 2022-32.

Q: Can you recommend some books that can help me learn about personal finance and investing? A: To get started on your investing journey, here are a few books that I would recommend:

The Millionaire Next Door by Thomas Stanley and William Danko
The Little Book of Common Sense Investing by Jack Bogle
I Will Teach You To Be Rich by Ramit Sethi
A Random Walk Down Wall Street by Burton G. Malkiel

Q: How can I save money when I have student loans and other expenses? A: It’s about prioritizing your future self. Even if it’s just a small amount, saving consistently can make a big difference. For instance, if you save $100 a month starting at age 20, by age 65, you could have over $300,000, assuming a 7% annual return.

Q: Isn’t it better to pay off debt before saving? A: While paying off high-interest debt should be a priority, it’s also important to build the habit of saving. Even a small emergency fund can prevent you from going further into debt when unexpected expenses arise.

Q: Can I access my retirement funds before retirement? A: While it’s possible, it’s not advisable due to penalties and lost growth potential. For example, withdrawing $10,000 from your retirement account today could mean missing out on over $100,000 by the time you retire, assuming a 7% annual growth.

Q: Why choose index funds or index ETFs? A: Index funds and index ETFs provide diversification, which reduces risk. Also, due to their lower expense ratio, index funds perform better than 90% of actively managed funds over the long term. Instead of betting on specific companies, you’re investing in a broad market. For example, an S&P 500 index fund gives you a piece of the top 500 companies in the U.S. including the magnificent 7.

Q: I just started my first job earning a $40,000 annual salary which I expect to grow at 3% per year. I plan to save 12.5% of my income. What would be the value of my retirement account when I turn 65? A: Good plan! By the way, 12.5% is equivalent to 1 hour of your salary each day. This is a great start. You can increase it to 15%, 20% or even 25% as your income grows. For example, you may save half of your raises to increase savings, without compromising your lifestyle needs. At 12.5% saving rate, your account balance will be $1.6 million (see the breakdown in the table below).

Starting Age	25
Retirement Age	65
Annual Return (assumed)	7%
Starting Salary	$40,000
Annual Raise (assumed)	3%
% of Income Saved	12.5%
Total Saved	$393,316
Total Investment Returns	$1,194,771
Ending Balance	$1,588,087
% of Balance from Saving	25%
% of Balance from Investment Returns	75%

As you can see, 75% of the balance comes from investment returns. However, it requires you to save consistently and stay invested through the end, through market ups and downs. Note that the majority of the growth comes after you have built a large enough balance as you get closer to retirement age. For example, at 56, your account balance will be about $770,000 which more than doubles by the time you turn 65 (in the last 9 years)! So, again, saving consistently and staying the course all the way to retirement is key.

Note: You can use this spreadsheet to calculate your projected account balance based on your own data (make a copy to make it editable).

Feel free to post below any additional questions you may have.

Disclaimer: This article is not intended to be investment advice. Consult a duly licensed professional for investment advice. The contents of this article are for educational purposes only and do not constitute financial, accounting, tax, or legal advice. Past performance is no guarantee of future results.

Audio Summary created using Google NotebookLM

Abhijit Shende · Your Practical Blueprint for Financial Freedom

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