How unobservable bond positions in retirement accounts affect asset allocation
- Many tax-codes around the world allow for special taxable treatment of savings in retirement accounts. In particular, profits in retirement accounts are usually tax exempt which allow investors to increase an asset’s return by holding it in such a retirement account. While the existing literature on asset location shows that risk-free bonds are usually the preferred asset to hold in a retirement account, we explain how the tax exemption of profits in retirement accounts affects private investors’ asset allocation. We show that total final wealth can be decomposed into what the investor would have earned in a taxable account and what is due to the tax exemption of profits in the retirement account. The tax exemption of profits can thus be considered a tax-gift which is similar to an implicit bond holding. As this tax-gift’s impact on total final wealth decreases over time, so does the investor’s equity exposure.
| Author: | Marcel Marekwica, Raimond MaurerORCiDGND |
|---|---|
| URN: | urn:nbn:de:hebis:30-43631 |
| Parent Title (English): | Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 176 |
| Series (Serial Number): | Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (176) |
| Publisher: | Univ., Fachbereich Wirtschaftswiss. |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2007 |
| Year of first Publication: | 2007 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2007/04/21 |
| Tag: | asset allocation; asset location; tax exempt accounts; tax-deferred accounts |
| GND Keyword: | Rentner; Asset-Backed Security; Ersparnis; Steuer |
| Page Number: | 27 |
| Note: | First draft: March 2006; this version: March 1, 2007 |
| HeBIS-PPN: | 185750001 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Licence (German): |  Deutsches Urheberrecht |
