Perspectives: Two Key Concepts for Wealth Management and Beyond
Posted: 24 Jan 2012
Date Written: January 23, 2012
Asset allocation is profoundly influenced by at least two underappreciated concepts. First, tax-deferred accounts — for example, 401(k)s — are like partnerships in which the investor owns (1–tn) of the partnership principal and the government owns the remainder, where tn is the marginal tax rate when the funds are withdrawn. Second, the government shares in both the return and the risk of assets held in taxable accounts. The authors discuss these concepts’ implications for wealth management.
Keywords: Portfolio Management, Tax Efficiency, Private Wealth Management, Investment Strategy and Asset Allocation, Tax-Aware Investment Strategies, Investment Vehicles and Asset Class Exposures, Tax-Deferred or Tax-Exempt Savings Vehicles
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