561

TABLE 30.8 Real After-Tax Ending Wealth

$1 million starting

value; 20-year

lolding periods no spending from portfolio

Expected

Observed

Terminal Maximum

Terminal Minimum

Amount

Annualized

Minimum

Conservative Semiconservative Moderate Semi aggressive Aggressive

1,703,177 1,897,423 2,103,882 2,321,830 2,550,273

2.70% 3.25 3.79 4.30 4.79

2,962,304 3,457,124 4,023,525 4,669,807 5,404,874

783,104 809,596 830,364 849,446 866,702

654,136 652,272 583,951 502,581 431,080

Source: Nominal and inflation data from Ibbotson Associates; tax adjustments by Goldman Sachs.

more conservative posture following a decline in market prices. This locks in the loss and creates die possibility of lower terminal results than might have been possible if a more conservative posture had been adopted from die beginning.

One of our goals in diese chapters on taxable client portfolio management is to show how die principles of modern portfolio management can be applied while accommodating die impact of taxation. Figure 30.8 plots the expected values from Table 30.8 against die standard deviations of die results observed for die many 20-year holding periods diat we studied. This is a first step in developing an efficient

15 $2,500,000 * $2,000,000 ,£

$1,500,000

$1,000,000

$3,000,000

$200,000 $400,000 $600,000 $800,000 $1,000,000

Standard Deviation of Observed Results (Not Annualized)

$1,200,000

FIGURE 30.8 Real, After-Tax Wealth and Volatility over 20 Years ($1 Million Initial Value) Source: Nominal and inflation data from Ibbotson Associates; tax adjustments by Goldman Sachs.