ROBUSTNESS OF ASSET LOCATION DECISION CONSIDERATIONS

Asset location, which means locating different types of assets to accounts with different tax treatment, is one of the investment decisions investors should consider. Conventional wisdom believes that it is preferable to hold bonds in taxable accounts and stocks in Tax-Deferred Accounts, but recent studies reveal that it is not true (Reichenstein, Hora, and Jennings, 2012). Our study further investigates the robustness of results in aforementioned paper.Researchers believe that in most cases, it is preferable to hold bonds in TDAs and to stocks in taxable accounts. However, sensitivity analysis shows that return and risk profile of assets, risk tolerance of investors, and tax rate of different assets can reverse the preference, within reasonable ranges. The discussion also uses numerical examples to illustrate optimal weights under different assumptions, and historical data is used to prove the plausibility of numerical examples.