The Value of Asset Location

Steve McConnell2026-10-07T19:50:23+00:00

Even advised investment accounts commonly use a “peanut-butter spread” approach to asset location--investments in taxable, tax-deferred, and Roth accounts are similar or the same. This Field Note explains why more deliberate tax location can improve after-tax returns without changing a household’s overall asset allocation or risk. Four scenarios illustrate how the benefits vary with account balances, tax rates, low-basis holdings, 401(k) constraints, and available Roth capacity.

The Value of Asset LocationSteve McConnell2026-10-07T19:50:23+00:00

Bond Funds are Not Bonds, and Why That Matters

Steve McConnell2026-10-14T22:54:37+00:00

Investors assume that bond funds behave like bonds, but most bond funds do not. Most bond funds perform more like low-volatility low-return stock funds than individual bonds. This Field Note describes the advantages of a relatively new type of bond fund that offers performance similar to actual bonds.

Bond Funds are Not Bonds, and Why That MattersSteve McConnell2026-10-14T22:54:37+00:00

Backtested Investment Performance Results

Steve McConnell2026-09-18T04:14:52+00:00

Backtested investment results can look highly persuasive while providing little evidence about future performance. A recent working paper by Alex Vidovich shows ways in which common backtesting practices can produce false-positive rates far above accepted research standards, especially when researchers repeatedly test variations against the same historical data.

Backtested Investment Performance ResultsSteve McConnell2026-09-18T04:14:52+00:00

Why we ignore the 4% rule

Steve McConnell2026-09-10T23:46:07+00:00

The 4% rule is both one of the most cited numbers in retirement planning and one of the least useful. The rule makes questionable assumptions about investments, spending patterns, future income, future assets, and life expectancy. It turns out, when all factors are considered, the 4% rule isn't even a good first order approximation.

Why we ignore the 4% ruleSteve McConnell2026-09-10T23:46:07+00:00

Dedicated Spending Sleeves: An Institutional Strategy for Households

Steve McConnell2026-06-30T05:50:20+00:00

Sequence of returns refers to the risk that an extended down cycle begins at the onset of retirement. The risk that a down cycle will permanently impair your retirement portfolio is real. Conventional wisdom treats this as an asset allocation problem, but the typical response of moving heavily into bonds (or bond funds) as you approach retirement can make the problem worse. A better solution makes targeted use of a specific type of bond fund.

Dedicated Spending Sleeves: An Institutional Strategy for HouseholdsSteve McConnell2026-06-30T05:50:20+00:00

ISO Options, AMT, and the Multi-Year Strategy

Steve McConnell2026-06-01T23:32:43+00:00

How many ISOs can you exercise without triggering AMT? That's a good question for one year, but it potentially misses a more important strategy question. Here's how that issue unfolds across a multi-year horizon.

ISO Options, AMT, and the Multi-Year StrategySteve McConnell2026-06-01T23:32:43+00:00

Can Investors Benefit from the Active Management of Value Line Funds?

Steve McConnell2026-09-08T00:32:49+00:00

Most active managers underperform their benchmarks, but Value Line has a long enough record of exceptions that the Value Line Effect is cited as an anomaly for the Efficient Market Hypothesis. This analysis compares seven Value Line funds to factor-matched index fund clones over 2015–2024, built with the Fama-French five-factor model. Index clones won in five of seven cases. Value Line's mid cap growth and small cap growth funds outperformed, which is a rare result.

Can Investors Benefit from the Active Management of Value Line Funds?Steve McConnell2026-09-08T00:32:49+00:00

The Case Against Direct Index Investing

Steve McConnell2026-10-15T00:44:34+00:00

Direct indexing promises lower costs, personalization, and better tax-loss harvesting. This Field Note finds it delivers none of these reliably. Model fees and small-lot trading friction exceed index fund expense ratios; the alternative to that is to hold only a subset of the index's stocks and introduce tracking error, which can be significant. Customization and tax-driven trades introduce tracking error and drift toward active management. Traditional index funds and ETFs serve the same goals more effectively.

The Case Against Direct Index InvestingSteve McConnell2026-10-15T00:44:34+00:00

About Steve McConnell

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About Steve McConnell

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Rain Dog’s Promise

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