After-Tax Asset Allocation

Posted: 8 Aug 2006

See all articles by William Reichenstein

William Reichenstein

Baylor University - Department of Finance, Insurance & Real Estate

Abstract

Several studies have found fundamental flaws in the traditional approach to managing individual investors' portfolios, including a failure to distinguish between $1 of pretax funds in a 401(k) and $1 of after-tax funds in either a taxable account or Roth IRA. This study recommends that an individual's asset values be converted to after-tax values and the asset allocation be based on the after-tax values. In general, within the target asset allocation, individuals should hold bonds and other assets subject to ordinary income tax rates in retirement accounts and hold stocks, especially passively managed stocks, in taxable accounts.

Keywords: Private Wealth Management, Asset Allocation, Asset Location, Tax-Efficient Investing; Portfolio Management, Asset Allocation

Suggested Citation

Reichenstein, William, After-Tax Asset Allocation. Financial Analysts Journal, Vol. 62, No. 4, pp. 14-19, July/August 2006, Available at SSRN: https://ssrn.com/abstract=922293

William Reichenstein (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-6146 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/Reichens/Home.htm

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