Line chart showing the efficient frontier comparison between before tax and tax-efficient allocations. The tax-efficient illiquid allocations provide higher geometric expected returns for similar levels of standard deviation compared to the before-tax allocations.
Source: Wells Fargo Investment Institute, as of December 31, 2023. Strategic (long-term) return and standard deviation assumptions are as of July 18, 2023. Forecasts are not guaranteed and are subject to change. Strategic expected 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. Expected 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.
Standard Deviation is a statistical measure of the volatility of a portfolio’s returns. The higher the standard deviation, the greater volatility has been. CMA = capital market assumption.
Key Takeaways
- When developing tax-efficient allocations, 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.