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

13.2K views
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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Key Insights

  • 📼 Asset location involves deciding which accounts hold specific asset classes, while asset allocation determines the mix of asset classes in a portfolio.
  • 🚕 Taxes on certain accounts can impact the after-tax asset allocation, potentially altering the risk profile of the portfolio.
  • 🚕 After-tax asset allocation should align with an investor's risk tolerance and financial goals to optimize outcomes.
  • 📼 Holding the same asset mix in all accounts simplifies portfolio management and eliminates the complexity of after-tax asset allocation.
  • 📼 Optimizing asset location may unintentionally result in a more aggressive asset allocation than intended.
  • 🚕 Considering after-tax asset allocation adds complexity to the portfolio management process but ensures alignment with risk profiles.
  • 🚕 It is important to assess whether after-tax asset allocation matches an investor's risk profile and make adjustments accordingly.

Transcript

Today I am going to tie together  some of the topics that we have   covered recently. If you have not  watched my videos on asset location   or asset allocation you may want to  check those out before watching this. In brief, asset allocation is deciding which  asset classes should make up your portfolio,   and asset location is deciding which acco... Read More

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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