Tax optimized investment strategies

  • 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. JEL Classification Codes: G11, H24

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Author:Marcel Marekwica
Place of publication:Frankfurt am Main
Referee:Raimond MaurerORCiDGND, Christian SchlagORCiDGND
Advisor:Raimond Maurer
Document Type:Doctoral Thesis
Date of Publication (online):2008/03/04
Year of first Publication:2007
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Granting Institution:Johann Wolfgang Goethe-Universität
Date of final exam:2008/01/16
Release Date:2008/03/04
Tag:asset allocation; asset location; tax exempt; tax-deferred accounts
GND Keyword:Anlagepolitik; Steuer
Page Number:155
First Page:1
Last Page:133
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht