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Implications of principal, risk, and returns sharing across savings vehicles
- Article from:
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Financial Services Review
- Article date:
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April 1, 2007
- Author:
- Reichenstein, William
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Copyright informationCopyright Academy of Financial Services Spring 2007. Provided by ProQuest LLC. (Hide copyright information)
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Abstract
This study illustrates that the choice of savings vehicles [e.g., taxable account, Roth IRA, or tax-deferred accounts such as a 401(k)] affects the portions of principal effectively owned by, returns received by, and risk borne by individual investors. This study examines the implications of this analysis for (1) the calculation of an individual's asset allocation, (2) mean-variance optimizations, and (3) asset location. For example, it illustrates problems when traditional mean-variance optimization is applied to an individual's portfolio. Separately, there is broad agreement among scholars that we should distinguish between pretax funds and after-tax funds when calculating an ...