The Location and Allocation of Assets in Pension and Conventional Savings Accounts
46 Pages Posted: 14 Apr 1999 Last revised: 26 Aug 2022
Date Written: March 1999
Abstract
This paper addresses two important parts of the problem of saving for retirement. They are (1) if assets are to be held in both conventional (and hence taxable) accounts and pension accounts, which assets should be held in each? and, (2) if the investor is substantially risk averse, what is the optimal mix of stocks and bonds for retirement saving? It is shown that the conventional wisdom of first placing heavily taxed corporate bonds in the pension account (and holding equity mutual funds outside the account) is the wrong asset location strategy for most people and most circumstances. It is also shown that even very risk averse retirement savers should allocate more than half of their portfolio to stocks if asset returns have the same means, variances, and covariances as have been observed over the past seventy years.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Optimal Consumption and Investment with Capital Gains Taxes
By Robert M. Dammon, Harold H. Zhang, ...
-
Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing
By Robert M. Dammon, Harold H. Zhang, ...
-
Asset Allocation and Asset Location: Household Evidence from the Survey of Consumer Finances
-
Asset Allocation and Asset Location: Household Evidence from the Survey of Consumer Finances
-
The Transition to Personal Accounts and Increasing Retirement Wealth: Macro and Micro Evidence
By James M. Poterba, Steven F. Venti, ...
-
Asset Location in Tax-Deferred and Conventional Savings Accounts
By John B. Shoven and Clemens Sialm
-
Utility Evaluation of Risk in Retirement Saving Accounts
By James M. Poterba, Joshua D. Rauh, ...