Refining After-Tax Return and Risk Parameters
The Journal of Wealth Management, Forthcoming
Posted: 7 Aug 2020
Date Written: August 2020
Taxes introduce certain complexities, requiring proper adjustments to return and risk parameters. The author offers a refined set of after-tax return and risk equations for use in practice and validates them with a stochastic future value cash flow model. The refined after-tax return and risk parameters can be used in portfolio optimization, Monte Carlo simulation, and deterministic present/future value portfolio modeling with internally consistent results. The refinements improve the discovery of the optimal after-tax portfolio and enhance long-term wealth planning in the presence of risk.
Keywords: portfolio theory, taxes
JEL Classification: G11
Suggested Citation: Suggested Citation