Household Portfolio Choices in Taxable and Tax-Deferred Accounts: Another Puzzle?

Gene Amromin

Review of Finance, 2003, vol. 7, issue 3, 547-582

Abstract: This paper provides a survey of existing literature on portfolio allocations in conventional and tax-deferred investment habitats. A long-standing puzzle in this literature has been the dissonance between the theoretical prediction of tax-efficient portfolio choices and observed portfolio allocations. I clarify this prediction and offer a different perspective by emphasizing the importance of uninsurable labor income risk and restrictions on accessibility of tax-deferred assets. I identify the key factors in dual-habitat portfolio decisions and highlight the necessary ingredients for producing non-tax-efficient, or precautionary, allocations.

Date: 2003
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