With assets risk matters, but it is really all about location, location, location

  • Many investors focus on allocation, or how risky their investments should be, but forget about asset location, says financial advisor Barry Glassman.
  • Where you populate investments depends on the catergory they fall into: after-tax, tax-deferred or personal accounts.
  • Investors should pretend to "start from scratch" nearly every year, in terms of where assets are located.

Most investors holding a financial portfolio will likely have at least some familiarity with the concept of asset allocation, or mitigating risk through diversification of funds among stocks, bonds, cash and other investment vehicles.

The idea is to strike the right balance between more potentially volatile assets such as stocks and more stable ones, like bonds, depending on your investment time horizon, risk tolerance and other factors. Younger investors with more time to grow assets might opt for 90 percent in stocks and 10 percent in bonds, for instance, while those nearing retirement might want to re-balance to, say, a less risky 60 percent stocks and 40 percent bonds.

What many people miss, however, is the importance of not only this allocation, but location and the bigger picture, as well, says Barry Glassman, founder and president of Glassman Financial Services.

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"One of the biggest mistakes I see from investors nowadays is they look to diversify each and every account among all the various asset classes," he said. "Really, what's most important is how the overall picture is diversified.

"Once the asset allocation is set, the next question is: Where do you populate those investments?" Glassman added. The answer depends on which of three general categories an assets falls into.

Roth accounts, those individual retirement accounts and 401(k) plan accounts funded with after-tax dollars, should get the most aggressive, "growthiest" allocations, Glassman said. That's because "those are likely the last assets a family will touch," he added.

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Next, taxed-deferred retirement accounts should be populated with the least tax-efficient types of assets such as high-yield bonds or actively managed mutual funds. These tend "to spit out capital gains," Glassman noted.

Lastly, Glassman said, he likes to populate personal accounts with the most tax-efficient assets such as index funds or municipal bonds. "That way, the total asset allocation is correct but each account is using that account to their greatest tax efficiency and purposeful goal."

Glassman also advises clients to give their investment mix a fresh look every year or so, to start "from scratch, and then be purposeful as far as what they allocate in each account."

— CNBC's Carmen Reinicke contributed to this report.