The fallacy of cookie cutter asset allocation

some evidence from ``New York's College Savings Program''

Abstract

In this paper, we establish why ``prefabricated'' asset allocation schemes mandated by some education savings programs might be suboptimal. Then, using the New York's College Savings Program as an example, we simulate and then compare end of period wealth accumulated in both a tax preferred but regimented asset allocation plan, and in a nontax protected plan.

We find, first, that the longer the child participates in the plan, the greater the bene®t. Second, participants in higher tax brackets derive greater bene®ts; adherence to prespeci®ed asset allocation for low tax bracket investors often results in return loss that overshadows the tax benefit. Copyright 2001 Elsevier Science Inc. All rights reserved.