Financial optimization system and method

Abstract

An improved investment optimizing system and method. Once an investor or investment advisor determines the appropriate asset allocation and that there are both taxable accounts and tax-deferred or tax-free investment accounts, the invention will optimize/maximize the investor's ending after-tax asset accumulation, which is the objective of all investors. This is accomplished by allocating the chosen investment vehicles between the taxable and tax-deferred accounts in an optimum way. The invention runs on a computer system and searches for an allocation which results in a maximal return. Intelligent heuristics measure increased performance based on different asset allocations.

1 . A system, for running on a computer, for determining an investment strategy for an entity with assets in taxable and tax-free accounts, comprising:
 an account information input component, to accept information regarding said assets in said taxable and tax-free accounts for said entity;   an investment selection input component, to accept information regarding a plurality of investments, including an indication of a percentage amount of said assets to invest in each of said plurality of investments;   an account amount selection component that selects amounts to invest from said taxable and tax-free accounts randomly or using Genetic Algorithms (GA), wherein said amounts substantially match said indication of a percentage amount to invest in each of said plurality of investments;   a time horizon input component, to accept an indication of a time horizon; and   a return on investment calculation component, to calculate a return on investment for said entity based on said information regarding said assets, said information regarding a plurality of investments, said indication of a percentage amount, said selected amount to invest from said taxable and said tax-free accounts, and said indication of a time horizon;   wherein said account amount selection component determines an amount from said taxable and tax-free accounts in order to produce a maximal after-tax accumulation for said entity at said time horizon.   
   
   
       2 . The system of  claim 1  wherein said account amount selection component randomly selects amounts from said taxable and tax-free accounts, and said return on investment calculation component calculates an after-tax accumulation for said entity based on said randomly selected amounts. 
   
   
       3 . The system of  claim 2  wherein steps of randomly selecting amounts from said taxable and tax-free accounts, and calculating a return, are performed a plurality of times, and said system outputs selected amounts from said taxable and tax-free accounts which produce a maximal return. 
   
   
       4 . The system of  claim 1  wherein said account amount selection component selects an amount from said taxable and tax-free accounts using Genetic Algorithms (GA) in order to produce a maximal return on investment for said entity at said time horizon. 
   
   
       5 . The system of  claim 4  further including:
 a chromosome structure, for use with said Genetic Algorithms, wherein said chromosome structure includes a plurality of values, each value being an indication of an amount from said tax-free accounts to invest in a selected one of said plurality of investments; and   said return on investment calculation component calculates an after-tax accumulation for said entity based on said values in said chromosome structure.   
   
   
       6 . The system of  claim 1  further including:
 a personal tax component, to accept information regarding personal tax rates for said entity, wherein said a return on investment calculation component calculates a return on investment for said entity based on said information regarding said personal tax rates.   
   
   
       7 . On a computer system, a method of determining an investment strategy for an entity with assets in taxable and tax-free accounts, said method comprising:
 receiving information regarding a plurality of investments;   receiving information regarding a percentage amount of said assets to invest in each of said plurality of investments;   receiving information regarding a time horizon; and   for each of said plurality of investments, selecting an amount to invest from said taxable and tax-free accounts randomly or using Genetic Algorithms (GA), wherein said determined amount to invest substantially matches said percentage amount to invest in said investment;   wherein said determinations will produce a substantially maximal after-tax accumulation for said entity at said time horizon.   
   
   
       8 . The method of  claim 7  wherein said step of determining an amount to invest from said taxable and tax-free accounts includes calculating tax consequences over said time horizon for said entity based on said amounts to invest. 
   
   
       9 . The method of  claim 8  wherein said step of determining an amount to invest from said taxable and tax-free accounts further includes:
 performing sampling steps a plurality of times, said sampling steps comprising:   randomly selecting amounts from said tax-free accounts to invest in each of said plurality of investments;   determining appropriate amounts from said taxable accounts so that said selected percentage amounts for each of plurality of investments is satisfied; and   determining a result if said amounts were invested as selected and determined for said time horizon.   
   
   
       10 . The method of  claim 8  wherein said step of determining an amount to invest from said taxable and tax-free accounts further includes:
 creating a plurality of GA chromosome structures, each GA chromosome structure including a value for each of said plurality of investments, each value being an indication of an amount from said tax-free accounts to invest in said corresponding investment;   setting said values in said plurality of GA chromosome structures to initial settings;   evaluating fitness of said plurality of GA chromosome structures;   selecting at least one of said GA chromosome structures with an optimal fitness; and   using said values from said selected GA chromosome structure as amounts from said tax-free accounts to invest in said corresponding investment for said substantially maximal accumulation.   
   
   
       11 . The method of  claim 10  further including the step of:
 calculating an improvement value of said substantially maximal after-tax accumulation based on said determined investment amounts from said taxable and tax-free accounts, as compared to an after-tax accumulation based on said initial settings.   
   
   
       12 . A computer system for determining an optimal investment strategy for an entity with assets in taxable and tax-free accounts, comprising:
 means for obtaining tax information, account information, account amounts, and time horizon information from said entity;   a GA chromosome structure, for indicating an amount to invest in said taxable and tax-free accounts;   means for obtaining initial amounts to invest in said taxable and tax-free accounts;   means for calculating an after-tax accumulation based on indications in said GA component structure;   means for modifying said GA chromosome structure to improve said calculated after-tax accumulation; and   means for displaying said resulting after-tax accumulation.