Which consideration is necessary for strategic asset allocation?

For strategic asset allocation, focusing on after-tax returns is essential because it provides a more accurate picture of an investor's net benefit from their investments. Taxes can significantly affect the actual returns on investments, and this consideration helps in assessing the true performance of various asset classes.

When forming a strategic asset allocation, investors aim to align their investments with their long-term goals while accounting for factors such as risk tolerance, time horizon, and expected returns. After-tax returns allow investors to evaluate how different asset classes will perform in real terms after accounting for taxes, which is crucial for assessing the sustainability and growth of wealth over time.

Additionally, strategic asset allocation is a long-term decision, and ignoring the impact of taxes can lead to suboptimal investment choices. By considering after-tax returns, investors can optimize their portfolios to enhance overall performance while managing tax liabilities effectively. This focus also assists in maintaining consistency with the investor's overall financial strategy and goals, leading to a more robust allocation that maximizes the potential for growth relative to tax impacts.

In contrast, while factors like future capital gains taxes, historical asset performance, and current cash flow availability can influence investment decisions, they do not directly align with the primary objective of strategic asset allocation, which is to establish a long-term investment