An investor is going to invest $50 in a taxable investment account. An investor is going to invest $50 in a taxable investment account. An investor is going to invest $50 in a taxable investment account and $50 in an IRA. In
the taxable account, funds are subject to taxes on dividends and earnings are subject to
capital gains upon withdrawal. Earnings on funds in the IRA are treated as ordinary
income upon withdrawal but funds in the IRA are subject to no other taxes. How would
you determine the optimal breakdown of equities and bonds across the two accounts?
Can you come up with a back of the envelope estimate of how valuable your strategy
might be? Make (and document) any assumptions necessary. A basic model is likely to
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