Personal Investments • Tax liabilities and asset allocation

Simple version of the question: consider a portfolio with the following assets:

1. Stock ABCD with a market value of $60,000 and a cost basis of $20,000
2. BND (bond ETF) with a market value AND cost basis of $40,000

Tax rates: 37% Federal, 13% State (50% total)

Is this a 60:40 stock:bond portfolio? Or is this a 50:50 portfolio, since the stock is really worth only $40,000 in after-tax spendable money? More generally: how should assets be valued relative to their respective tax liabilities when evaluating overall asset allocation?

Reason for the question: my portfolio includes a big chunk of equity with a low cost basis (stock options, actually) that accounts for ~50% of the total portfolio pre-tax but only ~33% of the portfolio post-tax.

Every portfolio has unrealized gains (or losses) and future tax consequences sprinkled throughout, but it seems like those are mostly ignored when managing asset allocation because they aren't big enough to matter (unlike in the examples above). Or maybe I haven't fully understood how folks think about allocation in the present in relation to tax in the future...

Thank you

Statistics: Posted by billevans — Tue Jan 30, 2024 4:53 pm — Replies 2 — Views 313

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