Maximizing Long-Term Wealth Accumulation

September 2005

In this article, academic researchers discuss the advantages of placing equities in taxable accounts and taxable bonds in tax-deferred accounts in order to maximize the tax efficiency of one’s overall portfolio. Robert Dammon, Chester Spatt, and Harold Zhang co-authored a paper on this topic of asset location that won the 2004 TIAA Paul A. Samuelson Award. Their research indicates that the relative proportions of taxable and tax-deferred wealth affect one’s overall optimal asset allocation. James Poterba also has researched asset location issues such as different investment horizons and different tax rates during accumulation and distribution phases.