Pre VS After Tax Asset Allocation | Summary and Q&A

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November 23, 2018
by
Ben Felix
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Pre VS After Tax Asset Allocation

TL;DR

The video explains how asset location can impact asset allocation and suggests considering after-tax asset allocation for optimal portfolio management.

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Questions & Answers

Q: How does asset location impact asset allocation?

Asset location refers to holding different assets in different accounts, which can affect the after-tax asset allocation. Taxes from specific accounts can change the overall mix of assets, impacting the risk profile of the portfolio.

Q: Why is after-tax asset allocation important?

After-tax asset allocation determines the actual returns an investor receives. It's crucial to ensure that the after-tax allocation aligns with one's risk profile and financial objectives to achieve the desired outcomes.

Q: What happens if all assets are held in the same asset mix in all accounts?

Holding the same asset mix in all accounts eliminates the complexity of after-tax asset allocation. It ensures that the pre-tax and after-tax asset allocations remain the same, simplifying portfolio management.

Q: How can optimizing asset location impact an investor's asset allocation?

Optimizing asset location, such as holding most or all bonds in RRSP accounts, can lead to a more aggressive asset allocation than intended. This may result in higher expected returns but adds complexity to portfolio management.

Summary & Key Takeaways

  • Asset allocation is deciding which asset classes should make up a portfolio, while asset location is deciding which accounts hold these asset classes.

  • Holding different assets in different accounts can affect the after-tax asset allocation, as taxes from certain accounts can impact the overall mix.

  • After-tax asset allocation should be considered to ensure it matches an investor's risk profile and helps achieve financial goals.

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