Private Wealth

STEPHEN M. HORAN, PhD, CFA, manages professional education and private wealth management content for CFA Institute members. Dr. Horan has served CFA Institute as both an editorial board member and abstractor for the CFA Digest and as an ad-hoc reviewer for the Financial Analysts Journal. He holds a PhD in finance from the State University of New York at Buffalo, publishes frequently in academic and professional journals, and has authored several books. Prior to joining CFA Institute, he was a professor of finance at St. Bonaventure University, principal of Alesco Advisors LLC, and a financial analyst and forensic economist in private practice, providing expert witness testimony and preparing economic impact studies.

Foreword ix Introduction 1 Part I: Life-Cycle Investing Chapter 1 Chapter 1 The Future of Retirement Planning 7 Robert C. Merton Reprinted from The Future of Life-Cycle Saving and Investing, The Research Foundation of CFA Institute (October 2007):518. Chapter 2 Is Personal Finance a Science? 19 Paul A. Samuelson Reprinted from The Future of Life-Cycle Saving and Investing, The Research Foundation of CFA Institute (October 2007):14. Chapter 3 Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance 23 Roger G. Ibbotson; Moshe A. Milevsky; Peng Chen, CFA; and Kevin X. Zhu Reprinted from The Research Foundation of CFA Institute (April 2007). Chapter 4 The Theory of Optimal Life-Cycle Saving and Investing 99 Zvi Bodie, Jonathan Treussard, and Paul Willen Reprinted from The Future of Life-Cycle Saving and Investing, The Research Foundation of CFA Institute (October 2007):1937. Chapter 5 Is Conventional Financial Planning Good for Your Financial Health? 117 Laurence J. Kotlikoff Reprinted from The Future of Life-Cycle Saving and Investing, The Research Foundation of CFA Institute (October 2007):5571. Chapter 6 The Life Care Annuity 133 Mark J. Warshawsky Reprinted from The Future of Life-Cycle Saving and Investing, The Research Foundation of CFA Institute (October 2007):103106. Chapter 7 The Longevity Annuity: An Annuity for Everyone? 137 Jason S. Scott Reprinted from the Financial Analysts Journal (January/February 2008):4048. Chapter 8 A Sustainable Spending Rate without Simulation 151 Moshe A. Milevsky and Chris Robinson Reprinted from the Financial Analysts Journal (November/December 2005): 89100. Chapter 9 Asset Allocation without Unobservable Parameters 169 Michael Stutzer Reprinted from the Financial Analysts Journal (September/October 2004):3851. Part II: Investment Management for Taxable Private Clients Chapter 10 Investment Management for Taxable Private Investors 191 Jarrod Wilcox, CFA; Jeffrey E. Horvitz; and Dan diBartolomeo Reprinted from The Research Foundation of CFA Institute (January 2006). Chapter 11 Core/Satellite Strategies for the High-Net-Worth Investor 299 Clifford H. Quisenberry, CFA Reprinted from CFA Institute Conference Proceedings Quarterly (December 2006):3845. Chapter 12 The Higher Equity Risk Premium Created by Taxation 311 Martin L. Leibowitz Modified from the Financial Analysts Journal (September/October 2003):2831. Chapter 13 Tax Deferral and Tax-Loss Harvesting 317 Jeffrey E. Horvitz Reprinted from CFA Institute Conference Proceedings: Wealth Management (October 2005):2430. Chapter 14 Tax Management, Loss Harvesting, and HIFO Accounting 327 Andrew L. Berkin and Jia Ye Reprinted from the Financial Analysts Journal (July/August 2003):91102. Chapter 15 Investing with a Tax-Effi cient Eye 345 Robert N. Gordon Reprinted from CFA Institute Conference Proceedings: Wealth Management (October 2005):3140. Chapter 16 Diversifying Concentrated Holdings 361 Scott D. Welch Reprinted from AIMR Conference Proceedings: Investment Counseling for Private Clients III (August 2001):3035. Chapter 17 Hedging Low-Cost-Basis Stock 373 Robert N. Gordon Reprinted from AIMR Conference Proceedings: Investment Counseling for Private Clients III (August 2001):3643. Part III: Tax-Efficient Wealth Accumulation Chapter 18 Tax-Advantaged Savings Accounts and Tax-Efficient Wealth Accumulation 387 Stephen M. Horan, CFA Reprinted from The Research Foundation of CFA Institute (June 2005). Chapter 19 After-Tax Asset Allocation 475 William Reichenstein, CFA Reprinted from the Financial Analysts Journal (July/August 2006):1419. Chapter 20 Withdrawal Location with Progressive Tax Rates 485 Stephen M. Horan, CFA Reprinted from the Financial Analysts Journal (November/December 2006):7787. Part IV: After-Tax Performance Measurement Chapter 21 After-Tax Performance Evaluation 507 Jame