Today I’ll look at the conventional wisdom that the tax burden of an investment strategy increases with its turnover. In addition, I’ll discuss why short selling is perceived to be particularly tax inefficient.

The “bucket approach” to retirement planning has been routinely adopted by financial planners, ever since it was popularized by Harold Evensky. Clients keep several years of assets in safe, liquid investments, while investing the rest of their portfolio more aggressively. But new research shows that this approach actually destroys a portion of clients’ wealth.

Investing in municipal bonds is riskier than many investors may perceive, with last year’s $74 billion default by Puerto Rico providing a reminder.

Today my colleague at Buckingham Strategic Wealth, institutional services advisor Tim Jost, will look at some of the latest research on the momentum factor.

A recent survey found that almost 50% of Democrats were not investing. This compares with less than one-third of Republicans not investing. What is behind this dynamic?

Investors should seek opportunities with unique sources of risk and return that improve the efficient frontier by providing diversification benefits. However, understand that some investments exhibit negative skewness and high kurtosis while sacrificing the benefits of daily liquidity.

The 10th anniversary of the Great Financial Crisis is the subject of lots of articles and media coverage. As a result, I’ve been getting many questions about what caused that crisis and the lessons we can take away to prepare for the inevitable next one.

How risky is factor-based investing?

In another article, I looked at the size and volatility of the three equity premiums of beta, size and value. Today we turn our attention to the two premiums that help explain the performance of bond portfolios: term and credit.

Over the almost 25 years that I have been an investment advisor, I’ve learned that one of the greatest problems preventing investors from achieving their financial goals is that, when it comes to judging the performance of an investment strategy, they believe that three years is a long time, five years is a very long time and 10 years is an eternity.

Because of the risk of data mining, an important criterion for considering an investment strategy (such as a factor) is to not only see that a factor adds explanatory power to the cross section of returns while delivering a premium, but that the premium is persistent across time and economic regimes and is pervasive around the globe. By examining the performance of factors outside of the U.S., we create out-of-sample tests.

When studies are done on active versus passive funds, they should be performed on an apples-to-apples basis – to account for different exposures to the factors, such as size, value, momentum and profitability/quality, that explain differences in returns. Here’s how some researchers who failed to do this reached a surprising conclusion.

Perhaps the simplest strategy is to hold just three funds. For equities, you can own the Vanguard Total Market Index Fund and the Vanguard Total International Stock Index Fund. On the bond side, you can own the Vanguard Total Bond Market Index Fund. But such an approach ignores the academic evidence demonstrating there are certain factors that have provided above-market returns to investors willing and able to accept their additional risks.

I’ve been getting lots of questions lately about the merits of owning TIPS versus nominal bonds. With that in mind, today I’ll discuss how to determine the more appropriate strategy.

Research provides evidence supporting the pervasiveness of the size, value and momentum premiums. That should give investors further confidence that the premiums found in these factors in developed markets were not a result of data mining exercises, which, in turn, should offer confidence that an ex-ante premium for these factors exists around the globe.

If active management persistence is not significantly greater than should be expected at random, investors cannot separate skill-based performance (which might be able to persist) from luck-based performance (which eventually runs out).

When past returns are high, the risks of owning high-beta stocks significantly increase. Mutual fund investors should be sure they understand their fund’s level of exposure to market beta after periods of strong performance.

Investors and advisors have become concerned about the possibility, if not the likelihood, of the Treasury yield curve inverting. The reason for the concern is that the slope of the yield curve historically has been a good recession predictor.

The size premium’s relatively poor performance in U.S. stocks over the seven-year period from 2011 through 2017 caused many investors to question its persistence. I will address whether that skepticism is justified.

Like clockwork, each year the S&P SPIVA scorecard reports actively managed funds’ persistent failure to outperform appropriate, risk-adjusted benchmarks. The only thing different, it seems, is that each year the active management community contrives yet another explanation for its failure. And each time, those explanations are exposed as lame excuses.

Most investors believe that all passively managed funds in the same asset class are virtual substitutes for one another. The result is that, when choosing a specific fund, their sole focus is on its expense ratio. That is a mistake for a wide variety of reasons. The first is that expense ratios are not a mutual fund’s only expense.

A question I’m often asked involves the merits of investing in private real estate as an alternative to publicly available REITs. To answer that question, I will turn to the historical evidence.

A landmark study looked back at more than 100 years of data and 23 countries to determine if there are reasons to believe the cross-sectional patterns in factor returns will persist, or whether they were just anomalies that tended to disappear after publication.

Women face at least 12 unique financial and life challenges related to long-term retirement planning. Addressing them can be overwhelming and uncomfortable. Only by understanding the issues can you develop strategies that will provide the greatest chance of achieving your clients’ goals.

We know the historical evidence shows there are premiums for factors, but how can you be confident that those premiums will persist after research about them is published and everyone knows about them? After all, we are all familiar with the phrase “past performance does not guarantee future results.” Here is my answer.

How a fund defines its universe of small stocks eligible for purchase will make a significant difference in performance.

Wall Street has ridiculed passive investing for decades. The reason is obvious: Its profits – and for many firms, their very survival – are at stake. The basic argument is that the popularity of indexing (and the broader category of passive investing) is distorting prices as fewer shares are traded by investors performing the act of “price discovery.” Let’s examine the validity of such claims.

As expert poker player Annie Duke explains in her book, Thinking in Bets, one of the more common mistakes amateurs make is the tendency to equate the quality of a decision with the quality of its outcome. Poker players call this trait “resulting.”

My first book, The Only Guide to a Winning Investment Strategy You’ll Ever Need, was first published 20 years ago, in May 1998. With its 20th anniversary in mind, let’s see how my recommendations worked out for investors who followed them.

Based on the logical, risk-based explanations for the value premium, and the lack of evidence pointing to shrinking valuation spreads, my conclusion is that the most recent 10 years of performance is likely just another of those occasionally occurring but fairly long periods in which the value premium is negative.

New research shows a majority of active managers outperformed their emerging-market benchmarks, and did so by a wide margin (on average 1.57% annually). But it would be wrong to conclude that active management is the winning strategy in EM.

While factor-based, style investing in equities has become popular, its adoption has been much slower in other asset classes, including fixed income. New research shows that style investing can also be applied to bonds.

Despite the evidence, strong past performance is the prerequisite for manager selection by individuals as well as institutional investors. New research explains why investors are likely to get poor results from performance chasing.

Passive investing has been ridiculed by Wall Street for decades. The common theme is that indexing has become such a force that the market’s price discovery function is no longer working properly. Given the number of questions I get about this issue, one would think that passive investing is now dominating markets.

I’ve been getting lots of questions about whether the value premium still exists. Today I’ll share my thoughts on that issue. I’ll begin by explaining why I have been receiving such inquiries.

The U.S. bond market is one of the largest in the world, with managers controlling more than $2 trillion in assets. Given its size, an important question is identifying active bond fund managers that add value.

The traditional 60/40 model no longer can be expected to deliver the same type of results. A new model is for investors to move toward more of a risk-parity portfolio, with assets more equally divided among stocks, bonds and these new alternatives.

To address questions about the benefits of international investing and diversification, we don’t have to look too far back in time.

Advisors will learn how using factors and alternative investments that have premiums that are unique and have evidence of persistence, pervasiveness, robustness, implementability, and intuitive risk- or behavioral-based explanations for why we should expect the premiums to persist in the future can lead to the building of more efficient portfolio that also reduce tail risks. You will learn which factors from the over 600 in the literature should be considered and which alternatives out of the many available should be used and why.

The underperformance of Buffett’s Berkshire stock (BRK.A) relative to the S&P 500 over the last 10 years is virtually fully explained by the negative performance of the value factor over that period.

At the start of 2017, I compiled a list of predictions that market gurus had made for the upcoming year, along with some items I heard frequently from investors, for a sort of consensus on the year’s “sure things.” As is my practice, I will give a score of +1 for a forecast that came true, a score of -1 for one that was wrong, and a 0 for one that was basically a tie.

While U.S. equity valuations clearly are at historically high levels, is the outlook as bleak as it seems? Perhaps not. Let’s see why that is the case.

Economic theory posits that investors require high expected returns when cyclical consumption is low in economic contractions and low expected returns when cyclical consumption is high in economic expansions. New research is consistent with that theory.

There isn’t convincing evidence that a style-timing strategy, based on business cycles, can be expected to be profitable going forward.

There are logical explanations for why the size premium may have shrunk. But there also remain simple, intuitive, risk-based explanations for why the premium should persist.

Diminished cognitive skills, often the result of Alzheimer’s disease, are the greatest threat to the financial stability of your older clients, particularly those over age 65. A new book directed to advisors provides the tools to identify and overcome those threats.

In biblical tradition, the four horsemen of the apocalypse are a quartet of immensely powerful entities personifying the four prime concepts – war, famine, pestilence and death – that drive the apocalypse. For today’s investors, the equivalent is historically high equity valuations, historically low bond yields, increasing longevity and, as a result, the increasing need for what can be very expensive long-term care.

At least for tax-advantaged investors, dividends are irrelevant: They are neither good nor bad in terms of forward-looking return expectations. Therefore, while there is no reason to exclude dividend-paying stocks, focusing solely on them leads to less diversified (less efficient) portfolios.

REITs are vulnerable to an increase in interest rates or an economic contraction. If you have been thinking of increasing your allocation to REITs to generate more cash flow, this new research – and current valuations – should serve as a cautionary warning.

I often hear criticisms about the use of bond ladders. Whenever the criticism comes from professional advisors, however, I’ve noticed it generally involves firms that use only bond mutual funds or ETFs instead of individual, tailored bond portfolios, whether in the form of a bond ladder or not. Unfortunately, much – if not all – of this criticism is based on falsehoods and the conflicts that can arise when advisors employ only mutual funds and ETFs.