Interest is income received from lending money or holding an interest-bearing investment. Because it is generally paid before an asset is sold, it can reduce tax efficiency by limiting tax deferral. section 8.2
Assess interest income alongside the asset’s other tax characteristics:
- Account placement matters more when interest or other taxable payouts are substantial. section 8.2
- Expected return changes the value of choosing between an IRA and a taxable account. section 8.2
- Tax treatment differs across investments, including government bonds, high-yield bonds, money market funds, REITs, and municipal bonds. section 8.2
Table 8.3 Typical attributes of various assets
| Type of asset | Average return | Payout rate | Tax rate payout | Turnover rate |
| Large-cap stocks | 8% | 1.5% | 0.2 | 0 |
| High-growth stocks | 9.5% | 1.5% | 0.2 | 0 |
| International stocks | 8% | 1.5% | 0.25 | 0 |
| REITs | 8% | 4.5% | 0.35 | 0 |
| Money market fund | 3% | 3% | 0.35 | 0 |
| Government bonds | 4% | 4% | 0.35 | 0 |
| High-yield bonds | 7.5% | 5.5% | 0.35 | 0 |
| Municipal bonds | 2.5% | 2% | 0 | 0 |
| Large-cap,high-turnover stocks | 8% | 1.5% | 0.2 | 0.2 |
| High-growth,high-turnover stocks | 9.5% | 1.5% | 0.2 | 0.2 |
Compare average returns, payout rates, payout tax rates, and turnover rates across interest-bearing and other assets. section 8.2
