PT  - JOURNAL ARTICLE
AU  - Stephen M. Horan
TI  - Applying After-Tax Asset Allocation
AID  - 10.3905/jwm.2007.690951
DP  - 2007 Jul 31
TA  - The Journal of Wealth Management
PG  - 84--93
VI  - 10
IP  - 2
4099  - https://pm-research.com/content/10/2/84.short
4100  - https://pm-research.com/content/10/2/84.full
AB  - 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.TOPICS: Wealth management, portfolio construction, risk management, performance measurement