Asset Allocation vs Asset Location

CFA Level III Portfolio Management
#1

In schweser there is a professor note which states:

  • Asset allocation if more important than asset location.

Could someone explain how it is more important? I dont get the point here.

Thanks

#2

I don’t have the context so I can only guess, but I’d say the idea he/she is getting at is that having a properly diversified, optimally allocated portfolio is more important than placing the assets that make up the portfolio in optimal accounts from a taxation standpoint. In other words, don’t screw up your asset allocation by attempting to locate assets in their most tax efficient account type. Certainly do it where you can, but not at the expense of your proper allocation.

#3

You can find the professor note under LOS 9.g… Please do look in the that as before the professor note there are some calculations performed which relates to this note.

#4

I don’t have the study notes sorry. I only bought a few of their practice exams ala carte. Maybe Flashback can chime in. I believe he has the notes.

#5

I’m not looking at the Schweser study notes right now, but I believe that what they’re essentially saying is that asset allocation is a much more important determinant of long-term performance. exposure to systematic risk is definitely more critical than any tax alpha that you can generate through asset location.

#6

These are general explanations but as far as i think the notes is specific to the context that is explained.

The text above the professor note explains the trader, active investors, passive investors and exempt investor. Above that it discusses shifting asset allocation from 25/75(equity/bond), that are kept in taxable accounts and tax deffered accounts (TDA/TDE) respectively, to 60/40 through leverage. So shifting asset allocation and staying without changing the tax location.

I guess the note has something to do with these. But i cant link it.

#7

bump