RT Journal Article
SR Electronic
T1 Applying After-Tax Asset Allocation
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 84
OP 93
DO 10.3905/jwm.2007.690951
VO 10
IS 2
A1 Stephen M. Horan
YR 2007
UL https://pm-research.com/content/10/2/84.abstract
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