¹ÏÌïºÚÁÏ

This paper examines the problem of optimal asset location policy for pension and non-pension retirement saving. If someone wants to save more than they are permitted to put into a tax-deferred pension account, then the question is which asset class (stocks or bonds) should be held in the pension and which should be held outside in conventional accounts. The standard answer - give any corporate bonds in the portfolio a preferred position in the pension - is shown, in general, to be incorrect. For most households and for most equity mutual funds, the optimal location strategy is to give first priority to holding the stock fund inside the pension. Bonds would have a lower locational priority and might have to be held outside the pension in the form of municipals. The paper also examines the optimal total retirement portfolio asset allocation between stocks and bonds for risk averse retirement savers. A policy of 60 percent stocks and 40 percent bonds is shown to be attractive for even extremely risk averse investors.