So you’ve carefully sold all your money-losing investments to harvest year-end tax losses to save money next April. Now what? It’s time to find something to do with the cash from those sales.

Start with a look at your asset allocation – the way your holdings are split among stocks, bonds and cash, including subcategories of each, like foreign stocks and municipal bonds.

The younger you are, the more you’ll want to put into stocks or stock-holding mutual funds. Older investors generally put more into bonds and cash to emphasize safety over growth.

Start by talking to your brokerage or mutual-fund company, or looking on its Web site for asset-allocation advice.

Morningstar Inc., the fund-tracking company, has an excellent allocation calculator under the tools button on its site, It shows the probability of reaching an investment goal given various asset allocations. Many Morningstar features are free, and the premium services are well worth the $14.95 monthly fee.

Quicken, the financial software program, has sophisticated planning functions, including an asset allocation calculator.

Finding the right fit

Unless you’re wealthy and know a lot about investing, stick with funds rather than individual stocks, which are much riskier. The Morningstar site has all the information for finding funds that fit your needs.

Steer clear of load funds, which charge an up-front sales commission that chews into returns. There are thousands of no-load funds that are at least as good.

For the same reason, look for funds with low annual fees, or expense ratios. Many managed funds charge more than 1 percent a year, while index funds and exchange-traded funds (ETFs) charge less than a fifth as much – less than 0.2 percent.

And if you’re investing in taxable accounts rather than IRAs or a 401(k), look for funds that aren’t likely to trigger big annual tax bills for capital gains distributions.

Doing the research

Morningstar has a Tax Analysis button on the main page that appears when you look at an individual fund, and Morningstar’s search tool can build a list of tax-managed funds designed to minimize tax bills.

Beware of investing in any fund just because it did well this year. Focus on five- and 10-year performance data.

Before picking any managed fund, see if there’s an index fund or ETF in the same category. With their buy-and-hold strategy, they offer very low fees and small annual tax bills.

ETFs are a form of index fund that is traded like a stock. They tend to have extremely low expense ratios and generate only the tiniest annual tax bills. Since they are traded like stocks, you have to pay sales commissions to invest. That’s a problem if you want to invest a small amount every month, but it’s not if you have a big lump sum.

Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at

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