One thing is certain when it comes to investing, taxes make a big difference in after-tax returns.

A recent article in The Wall Street Journal, “Individual Stocks vs. Index Funds: The Next Frontier,” discussed direct indexing as an advanced technique to potentially save on capital gains taxes. Instead of owning a single investment representing a sector or asset class, direct indexing means buying the hundreds or thousands of stocks individually that make up that asset class. While it’s a useful technique to aggressively harvest tax losses, the complexity involved is likely too much for most investors.

Carolyn Geer with the WSJ quotes Fran Kinniry, investment strategist for the Vanguard Group, as saying that “most investors would be better off simply holding tax-efficient investments, such as broad-market index funds and municipal-bond funds, in taxable accounts, and holding tax-inefficient investments, such as taxable bonds, in 401(k)s and individual retirement accounts.”

At Hill Investment Group, we agree. Here are our three main strategies to help increase after-tax returns:

• Optimizing asset location (as previously mentioned here)
• Tax-loss harvesting
• Using low turnover investments and tax-managed funds

According to Vanguard research, the first category alone can add up to 0.75% in annual returns, depending on the mix of investments.

We’re always surprised when meeting a new family and we see how little international stock exposure appears in their investment portfolio. We’ve long been believers in true global diversification. In Jonathan Clements’ recent piece, he provides four simple reasons to believe in international investing.

Sometimes, clients ask to ease into the market when they’re faced with the opportunity to invest a sum of cash. Although it feels more comfortable to wade given the uncertainty inherent with markets, the evidence shows that, approximately two thirds of the time, you are better off taking the plunge. This is true, both domestically and internationally, over the periods analyzed in a piece by Dimensional Fund Advisors. Plunging has some very positive implications for both average and sophisticated investors. In light of uncertainty, basing decisions on evidence actually reinforces your strategy each time you add money to your portfolio, whether it’s a lot or a little. Don’t let the failure to apply good strategy be your downfall. Click here to revisit this 2004 piece, To Wade or Plunge.