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The Journal of Wealth Management

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Primary Article

Applying After-Tax Asset Allocation

Stephen M. Horan
The Journal of Wealth Management Fall 2007, 10 (2) 84-93; DOI: https://doi.org/10.3905/jwm.2007.690951
Stephen M. Horan
Head of Private Wealth at the CFA Institute in Charlottesville, VA.
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  • For correspondence: stephen.horan@cfainstitute.org
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Abstract

The notion of after-tax asset allocation is gaining acceptance among private wealth managers. This article presents practical methods of calculating an investor's after-tax asset allocation, particularly as it relates to taxable accounts. The after-tax value of a taxable account can be substantially less than its stated pretax value, especially for long time horizons. Interestingly, after-tax values of taxable accounts are relatively insensitive to the investment's systematic risk but inversely related to the investment's tax burden and the risk-free rate. These results highlight the importance of converting balances in taxable accounts to after-tax values—a practice which heretofore has been dismissed by scholars and practitioners.

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The Journal of Wealth Management
Vol. 10, Issue 2
Fall 2007
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Applying After-Tax Asset Allocation
Stephen M. Horan
The Journal of Wealth Management Jul 2007, 10 (2) 84-93; DOI: 10.3905/jwm.2007.690951

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Applying After-Tax Asset Allocation
Stephen M. Horan
The Journal of Wealth Management Jul 2007, 10 (2) 84-93; DOI: 10.3905/jwm.2007.690951
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