A Model for Tax Advantages of Portfolios with Many Assets
25 Pages Posted: 4 Sep 2005 Last revised: 8 Jan 2015
Date Written: August 1, 2005
Abstract
Taxable portfolios present challenges for optimization models with even a limited number of assets. Holding many assets, however, has a distinct tax advantage over holding few assets. In this paper, we develop a model that takes an extreme view of a portfolio as a continuum of assets to gain the broadest possible advantage from holding many assets. We find the optimal strategy for trading in this portfolio in the absence of transaction costs and develop bounding approximations on the optimal value. We compare the results in a simulation study to a portfolio consisting only of a market index and show that the multi-asset portfolio's tax advantage can lead either to significant consumption or bequest increases.
Keywords: Taxes, portfolio optimization
JEL Classification: C61, G11, H24
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Optimal Consumption and Investment with Capital Gains Taxes
By Robert M. Dammon, Harold H. Zhang, ...
-
Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing
By Robert M. Dammon, Harold H. Zhang, ...
-
Asset Allocation and Asset Location: Household Evidence from the Survey of Consumer Finances
-
Asset Allocation and Asset Location: Household Evidence from the Survey of Consumer Finances
-
The Transition to Personal Accounts and Increasing Retirement Wealth: Macro and Micro Evidence
By James M. Poterba, Steven F. Venti, ...
-
Asset Location in Tax-Deferred and Conventional Savings Accounts
By John B. Shoven and Clemens Sialm
-
Utility Evaluation of Risk in Retirement Saving Accounts
By James M. Poterba, Joshua D. Rauh, ...
-
The Location and Allocation of Assets in Pension and Conventional Savings Accounts