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Subject:  Re: Taxable vs tax Defered Date:  9/6/2001  7:56 AM
Author:  wisenlucky Number:  31820 of 88520

In a 401k (or IRA), you can move money around from growth funds, to value funds, or to bond funds any time you want to with no tax consequences. If you do this in the taxable account, you'll constantly be worrying about the taxes. In fact, you may worry so much that you decide not to take capital gains when you really should. Then, you could suffer a big capital loss when you eventually liquidate.
I think what I would worry about in a taxable account is being out of the market at the wrong time, not the taxes, anyway I'm not a market timer, I'm not smart enough to know when the best time is exactly to be in bonds or growth or value stocks, so I just keep my allocation according to my time horizon till I would need the money, for stocks this is 5 years. And a good stash of "cash" to see me through an emergancy.

I don't think the first comment above relates to getting in or out of the market. Part of an effective asset allocation is a periodic rebalancing. If you try to rebalance a portfolio in a taxable account, you will suffer substantial tax consequences. If you then choose not to rebalance, you could suffer loss of returns if your allocation gets out of whack.

Almost the best solution seems to be to have money in both taxable and deferred accounts. Then you can use the tax deferred money to rebalance your overall portfolio while having the flexibility of taxable money to withdraw if need be.

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