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Start Paying Attention to Tax Efficiency

Seeking Alpha

Much attention has been paid to expense ratios of mutual funds. Yet, despite the fact that taxes have a substantial impact on the long-term performance of taxable mutual fund investors, far less attention has been paid to the impact of taxes on after-tax returns. And while the evidence is clear that it’s difficult for active fund managers to create superior investment performance by picking stocks or by timing markets, it’s relatively easy to avoid destroying value for taxable fund investors by managing investment taxes. For example, tax-aware funds might attempt to reduce the tax burden by avoiding the intentional realization of any short-term gains and by accelerating the realization of capital losses. Tax management strategies might not only reduce the tax burden, they might also generate lower trading costs. For example, tax-efficient investment strategies exhibit relatively low turnover, generating lower trading costs. In addition, liquidating stock positions with embedded capital losses and holding on to positions with capital gains might generate superior before-tax returns due to the momentum effect.

Tips for Dealing With the Market Decline

Huffington Post

The recent sharp decline in the stock market has investors concerned. Apparently, many “investment pros” thought the market would continue its upward trajectory through 2014. The National Association of Active Investment Managers conducts a weekly survey with advisers and found that they have an astounding 98.3 percent of their clients’ portfolios allocated to stocks. This was a sharp increase over the average of 72 percent allocated to stocks in 2013.

CalPer’s Private Equity Problem

ETF

In an effort to achieve returns that exceed those of the publicly available stock and bond markets, many large pension plans turn to alternative investments such as private equity. California’s CalPers, one of the nation’s largest public pension plans, while using equity index funds for more than one-third of its investments, is increasing its exposure to alternatives.

Lessons From 2013: Part IV

Seeking Alpha

Over the last few years we’ve seen a dramatic increase in interest in dividend paying stocks. The heightened interest has been fueled by both the media hype and the current regime of interest rates that are well below historical averages. The low yields available on safe bonds led even many once conservative investors to shift their allocations from safe bonds to dividend paying stocks. This is especially true for those who take an income, or cash flow, approach to investing – as opposed to a total return approach, which I believe is the right approach.

Media anoints investment gurus, should you pay attention?

CBS News

Some high profile investors are good at what they do, while others might just be lucky. Often it is hard to differentiate between the two groups, as both can boast of high returns. The media, meanwhile, quick to jump in and snap up a headline, sings the praises of these winning investors, without identifying who among them made strategic moves and who was just lucky — giving the impression that they are all people to watch.

The Sad Truth About Hedge Funds

ETF

There are many well-documented problems with investing in hedge funds, and it’s hard to know where to start in pointing them out.

Among them are: lack of liquidity; lack of transparency; loss of control over the asset allocation and thus risk of the portfolio; non-normal distribution of returns (they exhibit excess kurtosis and negative skewness); and they have a high risk of dying (12.3 percent per year from 1994 through 2008).

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