Most people have heard of asset allocation—the strategy of spreading your investments across different types of assets like stocks, bonds, and cash to manage risk and grow wealth. But there’s another important piece that many people overlook: asset location.
While the names sound similar, they mean different things:
- Asset Allocation is about what you invest in—stocks, bonds, cash, and other assets—based on your risk tolerance and financial goals.
- Asset Location is about where you keep those investments—whether in taxable, tax-deferred, or tax-free accounts—to help you pay less in taxes over time.
Why Does Asset Location Matter?
The way your investments are taxed can have a big impact on your long-term returns.
That’s why major financial sources like Investopedia and Fidelity talk about asset location as a strategy to help investors keep more of their money. But here’s what they leave out—cash value life insurance.
The Overlooked Tax-Free Asset
Most discussions about asset location focus on traditional accounts like Roth IRAs. These accounts offer tax-free growth, meaning you pay taxes upfront, but you don’t pay taxes when you withdraw the money.
But Roth IRAs have income limits—if you make too much money, you can’t contribute. That’s where cash value life insurance comes in.
Like a Roth IRA, cash value life insurance allows your money to grow tax-free. But unlike a Roth IRA, there are no income restrictions.
This makes it a powerful financial tool, especially for people who want to:
- Reduce taxes on their investments
- Save for the long term
- Have more flexibility than traditional retirement accounts
Why Life Insurance Deserves a Spot in Asset Location
If you look at the different tax-free accounts available, cash value life insurance stands out because it doesn’t have the same income-based limitations as Roth IRAs and other tax-free investment options.
The Bottom Line
If you’re looking for tax-free growth but don’t qualify for a Roth IRA—or just want to maximize your options—cash value life insurance deserves a place in your investment strategy. It’s a smart way to reduce taxes while still growing your wealth.
At The World Changers, we provide personalized strategies designed around your financial goals.
Book a session with one of our financial professionals for a personalized, client focused experience.
