Line chart provides the efficient frontier comparison between before tax and tax-efficient allocations.
Y-axis: Geometric expected return, increasing bottom to top; x-axis: Standard deviation, increasing left to right.
In two parallel lines the chart compares tax-efficient illiquid allocations to before-tax illiquid allocations using after-tax CMAs. In all cases the tax-efficient illiquid allocations provide somewhat higher geometric expected returns and elevated standard deviation compared to the before-tax illiquid allocations using after-tax CMAs.
Source: Wells Fargo Investment Institute, as of September 30, 2022. Forecasts are not guaranteed and are subject to change. Strategic hypothetical returns are forward-looking geometric return estimates from Wells Fargo Investment Institute of how asset classes and combinations of classes may respond during various market environments. Hypothetical returns do not represent the returns that an investor should expect in any particular year. They are not designed to predict actual performance and may differ greatly from actual performance. There are no assurances that any estimates given will be achieved.
- When developing tax-efficient portfolios, we have taken into consideration state, federal, and capital gains taxes.
- The tax-efficient allocations are made more tax efficient by swapping from taxable fixed income to tax-exempt fixed income, and reducing allocations to tax-inefficient asset classes like Hedge Funds and Emerging Market Fixed Income.