Perspectives: Two Key Concepts for Wealth Management and Beyond

Posted: 24 Jan 2012

See all articles by William Reichenstein

William Reichenstein

Baylor University - Department of Finance, Insurance & Real Estate

William W. Jennings

U.S. Air Force Academy - Department of Management

Stephen M. Horan

CFA Institute

Date Written: January 23, 2012

Abstract

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the partnership principal and the government owns the remainder, where tn is the marginal tax rate when the funds are withdrawn.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

Suggested Citation

Reichenstein, William and Jennings, William W. and Horan, Stephen, Perspectives: Two Key Concepts for Wealth Management and Beyond (January 23, 2012). Financial Analysts Journal, Vol. 68, No. 1, 2012, Available at SSRN: https://ssrn.com/abstract=1990489

William Reichenstein (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-6146 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/Reichens/Home.htm

William W. Jennings

U.S. Air Force Academy - Department of Management ( email )

2354 Fairchild Drive
Suite 6H-94
Academy, CO 80840-2944
United States

Stephen Horan

CFA Institute ( email )

915 East High Street
Charlottesville, VA 22902
United States

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