Calculating a family’s asset mix
DOI:
https://doi.org/10.1016/S1057-0810(99)00011-6Abstract
Two conclusions are reached about how a family should calculate its asset mix. First, if the assets will be used to finance retirement needs, the asset mix should be based on after-tax values, because goods and services are purchased with after-tax dollars. This novel conclusion rejects current practice. The second conclusion concerns which assets and liabilities should be included in the portfolio. If the purpose of the calculation is to consider a family’s retirement needs, the asset mix should include the promises of defined-benefit pension plans and Social Security, and the family’s mortgage should be treated as a short bond position. Also, if the family is willing to downsize or borrow against the residence, part of its value should be included in the portfolio. © 1998 Elsevier Science Inc. All rights reserved.
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