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In previous posts I have explored After-Tax Returns to Different Types of Accounts and Tax-Efficient Spending from a Portfolio.  In this post, I will expand a little further on how the type of account which holds an investment can affect the distribution of returns. Advisors don’t generally consider the after-tax allocations of their clients’ portfolios …

Let’s assume five different types of accounts are available: A taxable account where the funds are withdrawn to spend during life A taxable account where the funds are left for heirs A deductible IRA (or 401(k), 403(b), etc. the math is the same) A Roth (or again a Roth 401(k), 403(b), etc. the math is …

There are two contradictory forces and one inefficiency at work when income tax rates are changed: First, there is the familiar Laffer Curve effect which effectively says as you increase taxes on labor people substitute untaxed leisure.  I.e. you get less of what you tax.  That is fairly uncontroversial as a theoretical construct, but there …

I read Different a few years ago and highly recommend it.  I thought about our business and how we are different from “wirehouse brokers” (i.e. large firms), and I made this list: We have no idea what the Dow did today, nor do we think it is important. We are bad at sales and good …

In the tax code owning your own home is favorable because you don’t show the rent you are really paying yourself.  Economists call it imputed rental income.  Essentially, you are on the one hand a landlord and on the other the tenant but you don’t report the income but you do take (some of) the …

There are three issues with deciding when to exercise the options: Taxes – obviously they should be minimized. Risk – given that most folks already have extensive exposure to their employers (through their human capital if nothing else) options should frequently be exercised quickly. Return – since the value of an option is comprised of …

While inflation is currently quiescent, there is a great deal of concern that it may reappear with a vengeance in the future.  Currently the spread between nominal (“regular”) treasuries and TIPs (Treasury Inflation Protected Securities) indicates very moderate inflation expectations, but of course the situation could change.  Following are some of the main ways to …

In my previous post, I gave an overview of what an optimal tax code would look like in theory.  Following are my thoughts on the current tax code and how it might be improved specifically.  I’m sure few people will agree with all my thoughts, but hopefully it will spur some thinking.  Here are my …

Fundamental tax reform appears probable soon so I thought it would be worthwhile to share some thoughts on it.  Ideally, taxes should exist solely to raise revenue to fund appropriate functions of government.  When the code is used to reward or penalize particular behavior or groups, it becomes the tangled mess we have today.  I …

There has been a great deal of discussion since 2008 about the stock market exhibiting “fat tails” where the 2008 downturn was considered to be an outlier.  I thought it might be useful to investigate just how “normal” (or not) the market really is.  Normal means the distribution of returns matches the standard bell curve. …

Vanguard has Alpha.  Morningstar has Gamma.  Envestnet has Sigma.  Apparently describing the value a high-quality advisor brings to a client’s financial planning and investment management without using a Greek letter is prohibited!  But those papers have a point, and I also believe a high-quality advisor adds significant value.  Here’s how: Constructing an appropriate portfolio (I …

One of the ways a high-quality advisor adds value is by paying attention to asset location.  Low-quality advisors tend to ignore it. There are three reasons they may do so: They don’t care.  The advisor may have the cynical view that clients only focus on pre-tax returns so don’t worry about it.  If the primary …

A full-service, fee-only, wealth management firm can only effectively handle 100 clients per financial advisor (approximately, with a sizable standard deviation and positive skewness).  A more transactional model can manage a greater number, but since many of the smaller accounts will be neglected (to some extent at least) it is unclear that the actual revenue …

Many experienced Financial Advisors (aka Stock Brokers, Registered Reps, Financial Consultants, etc.) have learned, generally the hard way, what mistakes to avoid.  Unfortunately, newer advisors seem to make the same mistakes all over again (and many experienced folks never learn), harming their clients in the process.  Many high-quality, experienced advisors tend not to do a …

I am frequently asked by financial advisors what trade publications I read and what organizations are worthwhile.  Below is a list of my current subscriptions that I would consider most valuable: Financial Analysts Journal – free with membership in the CFA Institute Financial Planning – free for financial advisors Investment News – free for financial …

I am frequently asked for a recommended reading list, so I looked through my library and created the list below.  It is by no means comprehensive, yet in some respects it is undoubtedly redundant.  Some books are out of print and attempting to read it all would be daunting; so think of it as a …

This is primarily for my fellow financial advisors and those entering the industry and is intended to encourage us all toward higher standards.  There is (in my humble opinion) a difference between simply working as a financial advisor and being a professional.  In my experience the professionals in our industry are rare.  What makes a …

An article I wrote in May of 2006 is interesting now in light of what subsequently happened in the markets, but I also think the advice remains pertinent.  The entire rest of this post is that article: As you may have noticed there has been some turmoil in the markets lately and I wanted to …

Let’s move on now to determining the returns we should expect on our investments.  In the following discussion, I make no claim whatsoever to knowing what will occur in the short run, and in the long run these estimates will undoubtedly be wrong, but should give us the midpoint of a range of returns we …