TY - JOUR T1 - Refining After-Tax Return and Risk Parameters JF - The Journal of Wealth Management SP - 8 LP - 17 DO - 10.3905/jwm.2020.1.112 VL - 23 IS - 2 AU - Peter Mladina Y1 - 2020/07/31 UR - https://pm-research.com/content/23/2/8.abstract N2 - 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.TOPICS: Wealth management, factor-based modelsKey Findings• After-tax return and risk parameters are necessary for efficient asset allocation and accurate wealth planning. • Parameters must incorporate tax complexity while producing internally consistent results across portfolio optimization, Monte Carlo simulation, and deterministic modeling. • Refinements include the arithmetic-geometric return treatment with tax, a more precise incorporation of the effective annual capital gains tax rate, and risk manifesting in the price return across the distribution. ER -