Financial optimization system and method

Abstract

The invention relates to investment optimizing systems and methods. Once an investor or investment advisor determines the appropriate asset allocation and there are both taxable accounts and at least one of a tax-deferred and tax-free investment account, the systems and methods will optimize the investor's after-tax asset accumulation. This is accomplished by allocating the chosen investment vehicles between the taxable and at least one of the tax-deferred and tax-free accounts in an optimum manner. The invention includes a computer system and methods of the invention run on a computer system and further include the use of intelligent heuristics for measuring increased performance based on different asset allocations.

1 .- 23 . (canceled) 
     
     
         24 . A computer system for asset allocation management for an entity having a portfolio of assets in one or more accounts having different tax treatments, the computer system is configured to:
 accept, into a database, information regarding a total asset amount, an amount of assets in a taxable account, an amount of assets in at least one of a tax-deferred account and a tax-free account, a plurality of investments, an indicated percentage of the total assets to invest in each of the plurality of investments, and at least one time horizon;   select, using an asset allocation optimizer system, amounts to invest from the taxable account and at least one of the tax-deferred and tax-free accounts, such that the amounts substantially match the indicated percentage of total assets to invest in each of the plurality of investments; and   calculate, using the optimizer system, a return on investment for the entity based on the selected amounts to invest;   thereby determining an optimal amount from the taxable account and at least one of the tax-deferred and tax-free accounts to allocate in each of the plurality of investments that produces an optimal after-tax accumulation for the entity at the time horizon.   
     
     
         25 . The computer system of  claim 24 , further configured to:
 (a) randomly select, using the optimizer system, the amounts to invest from the taxable account and at least one of the tax-deferred and tax-free accounts; and   (b) calculate, using the optimizer system, an after-tax accumulation for the entity at the time horizon based on the randomly selected amounts.   
     
     
         26 . The computer system of  claim 25 , further configured to perform steps (a) and (b) a plurality of times and determine selected amounts that provide an optimal return. 
     
     
         27 . The computer system of  claim 26 , wherein the optimal return is the most tax efficient after-tax accumulation for the entity at the time horizon. 
     
     
         28 . The computer system of  claim 26 , wherein the optimal return is the maximal return on investment for the entity at the time horizon. 
     
     
         29 . The computer system of  claim 24 , further configured to select, using the optimizer system, amounts to invest from the taxable account and at least one of the tax-deferred and tax-free accounts using Genetic Algorithms (GA) to produce an optimal return. 
     
     
         30 . The computer system of  claim 29 , wherein the GA comprises a chromosome structure, wherein the chromosome structure includes a plurality of values, each value being an indication of an amount from at least one of the tax-deferred and tax-free accounts to invest in a selected one of the plurality of investments, and wherein the system is further configured to calculate an after-tax accumulation for the entity based on the values in the chromosome structure. 
     
     
         31 . The computer system of  claim 24 , wherein the tax-deferred account is selected from the group consisting of a traditional IRA, a 401(k) plan, a deferred annuity, a Keogh Plan, and other accounts subject to tax-deferral treatment. 
     
     
         32 . The computer system of  claim 24 , wherein the tax-free account is selected from the group consisting of a Roth IRA, a 529 investment plan, a municipal bond, and other accounts subject to tax-exemption treatment. 
     
     
         33 . The computer system of  claim 24 , further configured to determine an improvement value of the optimal after-tax accumulation compared to an initial after-tax accumulation, the initial after-tax accumulation is based on allocation of non-optimal amounts from the taxable account and at least one of the tax-deferred and tax-free accounts in each of the plurality of investments. 
     
     
         34 . A method for asset allocation management for an entity having portfolio assets in one or more accounts having different tax treatments, the method comprising:
 receiving, into a computer database in a computer system, information regarding a total amount of assets available, a plurality of investments available in a taxable account and at least one of a tax-deferred account and tax-free account, and, for each investment, a corresponding percentage of the total available assets for investment into at least one of the plurality of investments;   receiving, into the computer database, information regarding at least one time horizon;   defining, within an optimizer system in the computer system, an effectiveness of an investment strategy as its calculated yield at the time horizon;   where a chromosome is defined as a string of numbers comprising, for each investment, an allocation of the corresponding percentage of the total between the taxable and at least one of the tax-deferred and tax-free accounts;   selecting, using the optimizer system, a sample chromosome and calculating a first effectiveness;   selecting, using the optimizer system, an additional chromosome and calculating a second effectiveness;   for N generations, N>2:
 selecting, using the optimizer system, an Nth chromosome; 
 calculating, using the optimizer system, an Nth effectiveness of the Nth chromosome; and 
   choosing, using the optimizer system, the investment strategy yielding the highest effectiveness.   
     
     
         35 . The method of  claim 34 , wherein selecting the Nth chromosome comprises combining values from two previously selected chromosomes to produce the Nth chromosome as one complete chromosome. 
     
     
         36 . The method of  claim 35 , wherein the two previously selected chromosomes are chosen from among all previously selected chromosomes based on their calculated effectiveness. 
     
     
         37 . The method of  claim 34 , further comprising using a Monte Carlo technique to select the sample chromosome or the additional chromosome. 
     
     
         38 . A computer system for asset allocation management for an entity having a portfolio of assets in one or more accounts having different tax treatments, the computer system comprising interface components, a database, and an asset allocation optimizer system, wherein the computer system is configured to:
 accept, into the database, information regarding a total asset amount, an amount of assets in a taxable account, an amount of assets in at least one of a tax-deferred account and a tax-free account, a plurality of investments, an indicated percentage of the total assets to invest in each of the plurality of investments, and at least one time horizon;   select, using the optimizer system, amounts to invest from the taxable account and at least one of the tax-deferred and tax-free accounts using Genetic Algorithms (GA), such that the amounts substantially match the indicated percentage of total assets to invest in each of the plurality of investments;   calculate, using the optimizer system, a return on investment for the entity based on the selected amounts to invest;   determine, using the optimizer system, an optimal amount from the taxable account and at least one of the tax-deferred and tax-free accounts to allocate in each of the plurality of investments that produces an optimal after-tax accumulation for the entity at the time horizon; and   determine, using the optimizer system, an improvement value of the optimal after-tax accumulation compared to an initial after-tax accumulation, the initial after-tax accumulation is based on allocation of non-optimal amounts from the taxable account and at least one of the tax-deferred and tax-free accounts in each of the plurality of investments.   
     
     
         39 . The computer system of  claim 38 , wherein the GA comprises a chromosome structure, wherein the chromosome structure includes a plurality of values, each value being an indication of an amount from at least one of the tax-deferred and tax-free accounts to invest in a selected one of the plurality of investments, and wherein the system is further configured to calculate an after-tax accumulation for the entity based on the values in the chromosome structure. 
     
     
         40 . The computer system of  claim 38 , wherein the optimal after-tax accumulation is the most tax efficient after-tax accumulation for the entity at the time horizon. 
     
     
         41 . The computer system of  claim 38 , wherein the optimal after-tax accumulation is the maximal return on investment for the entity at the time horizon. 
     
     
         42 . The computer system of  claim 38 , wherein the tax-deferred account is selected from the group consisting of a traditional IRA, a 401(k) plan, a deferred annuity, a Keogh Plan, and other accounts subject to tax-deferral treatment. 
     
     
         43 . The computer system of  claim 38 , wherein the tax-free account is selected from the group consisting of a Roth IRA, a 529 investment plan, a municipal bond, and other accounts subject to tax-exemption treatment.