The impact of taxes on optimal portfolio choice : an Australian study

Taxes are an important component of investing that is commonly overlooked in both the literature and in practice. For example, many understand that taxes will reduce an investment’s return, but less understood is the risk-sharing nature of taxes that also reduces the investment’s risk. This thesis examines how taxes affect the optimal asset allocation and asset location decision in an Australian environment. It advances the model of Horan & Al Zaman (2008), improving the method by which the present value of tax liabilities are calculated, by using an after-tax risk-free discount rate, and incorporating any new or reduced tax liabilities generated into its expected risk and return estimates. The asset allocation problem is examined for a range of different scenarios using Australian parameters, including different risk aversion levels, personal marginal tax rates, investment horizons, borrowing premiums, high or low inflation environments, and different starting cost bases. The findings support the Horan & Al Zaman (2008) conclusion that equities should be held in the taxable account. In fact, these findings are strengthened with most of the efficient frontier maximising equity holdings in the taxable account instead of only half. Furthermore, these findings transfer to the Australian case, where it is found that taxed Australian investors should always invest into equities first through the taxable account before investing in super. However, untaxed Australian investors should invest their equity first through superannuation. With borrowings allowed in the taxable account (no borrowing premium), Australian taxed investors should hold 100% of the superannuation account in the risk-free asset, while undertaking leverage in the taxable account to achieve the desired risk-return. Introducing a borrowing premium decreases the likelihood of holding 100% of super in the risk-free asset for taxable investors. The findings also suggest that the higher the marginal tax rate, the higher the borrowing premium in order to overcome this effect. Finally, as the investor’s marginal tax rate increases, the overall allocation to equities should increase due to the increased risk and return sharing caused by taxation, and in order to achieve the same risk/return level as the lower taxation level, the investor must take on more equity exposure. The investment horizon has a minimal impact on the optimal allocation decision in the absence of factors such as mean reversion and human capital.

Parental experience of childhood cancer using Interpretative Phenomenological Analysis

Whilst survival rates for childhood cancer have improved dramatically over the past three decades, it is still a devastating diagnosis for family members and an illness which severely disrupts the lifestyle of the family unit. Developing an understanding of the impact of the illness on the family is crucial to better support families’ deal with the demands of the illness. In this study 9 families in which a child was diagnosed with cancer were interviewed twice over a 12 month period, approximately 6 months apart. Using Interpretative Phenomenological Analysis (IPA), a semi-structured interview was used to explicate parent’s experience of childhood cancer. The results revealed 5 super ordinate themes; (1) a pivotal moment in time, (2) the experience of adaptation in relation to having a sick child, (3) the nature of support, (4) re-evaluation of values during a critical life experience and (5) the experience of optimism and altruism. Findings indicate that parents express both negative and positive experiences as they re-evaluate the meaning and purpose of life, seek to redefine themselves, often in terms of priorities, relationships, sense of community, and achieve degrees of optimism and altruism. Implications for addressing the needs of parents and for further research are discussed.