Why Wave went to extremes for agile BI (Business Intelligence, and chose SiSense).

Jon Reed for Diginomica writes: Two years ago, Wave had a serious BI issue on their hands. Their existing BI suite was simply not agile enough. It is said that crisis and opportunity are flip sides on the same coin – which is exactly how Hui (Ken) Zheng, BI Manager with Wave, approached Wave’s BI dilemma. With more than 2,000,000 users of its online small business software, Wave is in aggressive growth mode; clunky BI is unacceptable. I recently talked with Ken Zheng about how his team looked these challenges in the eye – and moved ahead.

Jon: Ken, have you always been a BI guy?

Ken: My background is rooted in Computer Science and Technology Management. I’ve been with Wave for two years. Before joining Wave, I was a technology consultant with Deloitte Consulting on their information management service line. Information management and business intelligence is my trade.

Jon: What motivated you to move from Deloitte to Wave?

Ken: At Deloitte, the BI solutions we provided to clients were comprehensive, but they were not agile. Getting these complex BI solutions up and running requires a great deal of time and effort. I joined Wave because I wanted the opportunity to approach BI in a more practical and hands-on way. I wanted to find the right BI formula for companies that move fast and make decisions fast.

Jon: This is not unlike Wave’s difference with QuickBooks, right? At Wave, you want to give smaller companies an option that is not as cumbersome.

Ken: Exactly. Wave is all about understanding the needs of small business owners, entrepreneurs, consultants, freelancers and so on: small businesses instead of ‘small-and-medium’ businesses. By keeping this focus, we make Wave easier, because the tools make more sense, and there’s no avalanche of complex features that the small business owner doesn’t need. You can use Wave without being an accountant, and without being tech-savvy.

Jon: Take us back to your BI crisis. You were struggling with a large BI suite?

Ken: Yes, we were trying to work with BI software from a major BI vendor. But it was just too difficult to implement, and way too hard to use. We actually implemented the solution, and tried to use it for four months. It was just too complicated and too slow.

Jon: I’m sure that was a very stressful time for you and your team. What did you do about it?

Ken: We opened up a new BI vendor evaluation, and looked at almost all the major vendors, such as SAP BusinessObjects, Tableau, Birst, MicroStrategy, IBM Cognos, Oracle Business Intelligence, TIBCO Spotfire, Oracle Business Intelligence, QlikView, Pentaho, Microsoft BI suite, GoodData, DataHero, Domo and SiSense Prism.

Jon: Basically you looked at them all. 

Ken: Yes, in the end, we had a final four of SAP BusinessObjects, Tableau, Birst, and SiSense. And we chose SiSense.

Jon: And how did you make the final decision?

Ken: I built a pilot project for each vendor solution. I simulated the most complicated scenario at Wave to see how each application could solve that problem. I worked that scenario to see which one would be the best fit for us. We’re a growing, 60 person company, but as an online business that empowers each team for decision making, our analytics needs are intensive. We have the data usage needs of a bigger company; we needed a solution to match our intensive requirements.

Jon: Tableau is the BI solution du jour, so readers will want to know why you didn’t go in that direction.

Ken: A lot of people ask me, ‘Why didn’t you choose Tableau?’ Tableau is great; it has beautiful visualizations, and it is great for data discovery. But to me, Tableau is more like Excel 2.0. I believe it’s still far away from being a cross-organization BI solution, because it lacks the unified data modeling capabilities that SiSense has. Managing unified data model in a centralized manner is critical for any enterprise-level BI application.

Jon: What other factors affected your BI decision?

Ken: SiSense had some critical advantages. Their solution is very easy to set up and build reports on top of. Plus, SiSense can handle a lot of data without any tuning to the database, and that is very important. As an online web company, we have a lot of data, and we don’t have time to fine tune our database for every single report. Startups like Wave have to move very fast. In a big company, the manager might be able to wait a week for a new report, but our management cannot wait for even two days for a report.

Jon: But it’s not just about the speed, right?

Ken: That’s true. At Wave, we have a slogan that we want to give every ‘Waver’ the insights and the data. That means we are a very transparent company. Our BI team should deal with all the teams inside of Wave, and help them think about how to use the numbers and analytics to improve their operations. So we need technical solutions that work for this kind of transparent culture and, hopefully, empowering work environment. Performance is also critical for us. Our BI solution must allow us to push out reports without any performance delays or bottlenecks.

Jon: Tell us about the implementation.

Ken: After we did the SiSense pilot evaluation and compared it with all candidates, the winner was clear – we decided to purchase it. From there, we did the enterprise-level implementation. 90 percent of the implementation was done in one month – we went live in April 2012. Before SiSense, our report development time was two to three days. After SiSense, the development time went down to two or three hours. Also, our report query time improved from one-to- ten minutes to two-to-thirty seconds. Currently, we are a two person team, and we’re delivering ten times the BI output that we did on the old system.

Jon: But does the speed make a difference to the business?

Ken: Yes. A manager will not wait in front of a computer for more than one minute to get their numbers they are need, so a slow BI report is very, very frustrating.  By the way, if we wanted to improve that response time in our old BI system, we would have had to hire another DBA and put a lot of time and resources into database tuning.

Jon: So is the management team making more informed business decisions as a result?

Ken: Absolutely – they get a lot of insights now. We do revenue analysis, user activity analysis, and ad sales analysis. We analyze the acquisition channel; we also analyze monthly user activity and churn analysis, and we do A/B testing as well.

Jon: Sounds like you tackled some critical BI issues there.

Ken: We needed a more agile solution. For our market and the competition we are in, it’s agile or die.

Disclosure: SiSense helped to arrange this interview; SiSense is not a diginomica partner.

[END]

Jon Reed has been involved in enterprise communities since 1995, including time spent building ERP recruiting and training firms. These days, Reed is a (cough) blogger/analyst and also counsels vendors and startups on go-to-market strategy. He is an SAP Mentor, Enterprise Irregular, and video content producer.

You can read Diginomica here.

Self-Employed Taxes: How to Handle the IRS on Your Own

Nicholas Pell for Mainstreet writes: Growing numbers of Americans are now self-employed. In fact, Quartz recently reported that by the year 2020, as many as 40 percent of American workers will be freelancing. If you received a 1099-MISC form this year, you're going to have to file as a freelancer, at least in part. If this is your first time doing so, you might be in for a big sticker shock.

But before you panic, know that there are some things you can do to ease the pain. You can't retrace your steps from last year, but you can mitigate some of the damage as well as prepare for next year.

It's Never Too Late

"The process needs to start last year," says Janet Lee Krochman, a self-employed CPA, who says that every year people show up and hear all the stuff they should have been doing... right before their eyes glaze over. "If you haven't been collecting the data over the last year, you're going to wish that you had."

The solution going forward? Krochman recommends getting QuickBooks or something like it to keep track of your self-employment finances over the year. "The basic version, QuickBooks Essentials, can produce a report with everything that you need based on information you input over the course of the year," she says.

For last year, however, you're just going to have to start digging around in receipts and bank records looking for deductible items.

Save or Expect to Pay Big

"People think 1099s are just like W-2s except they didn't have anything withheld," says Bradford L. Hall, managing director of Hall and Company in Irvine, Va. "You also owe Social Security and Medicare tax that you probably haven't thought about." He cites this as the biggest mistake that people make when setting up abusiness -- to the tune of 15.3%.

The standard for self-employed, sole proprietors to put aside from every check they receive is 30%. That's going to work just fine until you start getting into higher tax brackets. You might get a refund and you might owe, but you're not going to be in way over your head like you will be if you failed to save anything.

The Truth About Audit Risks

One of the biggest concerns that people filing for the first time have is getting audited, with the home office being one of the places where first-time filers tread lightly. While Hall does state that the audit risks are higher for sole proprietors than LLCs, partnerships, S Corps and C Corps (four to ten times more likely, he tells us), less than 1% of all returns are audited and 70% of those are handled through the mail.

What's more, your Schedule C has a lot to do with your audit risk. "Schedule Cs with a gross income over $400,000 have a much higher audit risk," explains Hall. "That doesn't mean making $399,000 will keep you off," he says, going on to state that every deduction category has an audit trigger associated with it.

Of course, the best way to cover yourself in the event of an audit is to report all of your income and to never claim anything that you can't prove. Remember that if you filled out a W-9 form and received a 1099-MISC in the mail, the IRS knows that you got the income. Not reporting it is just inviting trouble.

"Section 162 is the Basic Code section that determines deduction availability," says Krochman, who advises the self-employed to become familiar with it. Like most pertinent tax information for the self-employed, this information can be found online at the IRS website.

So What Can I Deduct?

There's all kinds of stuff you can deduct. Basically anything that you bought or paid for with the express purpose of using for your business. If you work from home and have a room in your house exclusively dedicated to that, you can even deduct part of your rent and utilities.

This underscores the purpose of keeping records throughout the year: You might not be able to remember everything that you purchased throughout the year in April, but you can certainly keep track of everything that you purchased as you pay.

You can read MainStreet.com Here.

UK: Flow Online Accounting Launch Party

Flow Online Accounting writes: Flow is the ultimate online accounting solution where online software meets offline expertise. The online software is easy to use and customisable to your individual business requirements. With Flow, all your bookkeeping and accounting records are securely stored in the cloud, accessible anywhere and anytime. Real time information means your business accounts are always up to date, allowing you to view everything together at the touch of a button. With no more wasted time, money and energy you can take control of your business and put yourself ahead of your competitors. 

Flow’s powerful accounting software comes with unbeatable assistance from our team of professional advisers. We have over 60 years’ experience helping businesses like yours to succeed. We’ll help you to break down the numbers, assess your current business strategy to make improvements where necessary, and plan successfully for the future. Whatever your accounting needs, we’ll work together with you to provide solutions. Flow is fully regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), a guarantee of reliability and integrity. 

Flow offers an unbeatable fixed price service, so there are no hidden charges or big one-off bills. We make everything clear and easy to understand – our software, our advice, and our prices too. That way, you can get down to building your company with confidence. Flow’s all-in-one accounting package delivers unbeatable value. Try us and you’ll see that we mean business!

Flow Online Accounting Launch Party (Register)

When: March 6, 2014 from 18:30 to 21:30

Where: Hotel Novotel Manchester Centre 21 Dickinson Street Manchester M1 4LX

Event details

Harold Sharp believe their clients should benefit not only from the best financial and accounting advice, but also from the most suitable technology around. 

That's why they've launched Flow Online Accounting, an innovative approach to accounting services that delivers real measurable value to your business. 

GrowthAccelerator and Harold Sharp are hosting a launch party in celebration of Flow Online Accounting and it would be great if you could join us for wine, nibbles and networking.

As well as being a great opportunity to network with like minded people who want to grow their businesses, our fantastic speakers will be demonstrating how Flow can help you get back precious time to spend working on your business or at home doing what you enjoy, we will be providing information on access to regional business support services and giving you invaluable tips to help you grow your business through social media.

Our speakers are:

Chris Wrighton - Flow Online Accounting
With over 20 years' experience, Chris has worked with hundreds of SMEs, guiding them through growth and improving their financal position. Chris will be introducing Flow and explaining how it helps SMEs.

Andy Marsden - GrowthAccelerator
GrowthAccelerator is a premier service helping England's brightest growing businesses achieve their ambitions. It’s a partnership between private enterprise and government. And it’s affordable. Whatever businesses need to speed and sustain growth, GrowthAccelerator's network of growth experts will help drive them forward.

Andy Key - GrowthAccelerator Coach
Andy is one of the region's most successful growth coaches. He works with clients across a range of sectors helping them to realise the potential in their businesses. He brings with him a wealth of experience, contacts and knowledge that will be invaluable to anyone wanting help to grow their company.

Andy will be telling us about the support on offer through the Government funded GrowthAccelerator programme and providing examples of the positive impacts businesses can expect to enjoy from his assistance.

Sam Flynn - Sam Flynn Social Media
Sam is a social media specialist. She helps organisations win more business and achieve their goals using social media platforms such as Facebook, Twitter and LinkedIn.

Sam will be providing tips and advice on preparing a social media strategy and how to get the most from each platform.

We hope you can make it!

Beware the Stealth Tax / How to minimize the damage of the alternative minimum tax.

Laura Saunders for the Wall St Journal writes: Lee Linton never dreamed he would owe the alternative minimum tax, a levy first imposed nearly 50 years ago to keep the wealthy from overusing tax breaks.

"I thought the AMT was for people with stock options or fancy tax moves," says the 55-year-old utility engineer, who lives in Crystal River, Fla. "But I'm single and take the standard deduction."

Yet when Mr. Linton recently figured his 2013 taxes, he owed $3,000 of AMT on top of his regular tax bill—probably because he took $90,000 of capital gains last year in rearranging his portfolio for retirement. He says his marginal tax rate on the sale topped 27%, nearly double the 15% rate he expected to pay on his long-term capital gains.

"If I had seen it coming, I would have spread the sale over two years," Mr. Linton says. Now he is warning friends that "the AMT isn't just a tax for the 1%."

Indeed it isn't. According to estimates by the Tax Policy Center, a nonpartisan research group in Washington, the alternative minimum tax will raise about $26 billion from four million taxpayers in 2013, nearly two-thirds of them with incomes between $200,000 and $500,000 (see chart on this page).

The average AMT paid by those subject to it was $7,212 in 2011, according to the most recent data from the Internal Revenue Service.

The levy these taxpayers face is one that National Taxpayer Advocate Nina Olson calls "a Rube Goldberg contraption of unnecessary complexity." In essence, it is a flat tax that rescinds valuable benefits, such as deductions and exemptions, and eliminates the benefit of lower brackets in the regular tax.

Taxpayers have to figure their tax under both the AMT and regular systems and, if the AMT exceeds the regular tax, pay the excess amount.

Years ago, say experts, the AMT was typically owed by wealthy investors or executives who had benefited from breaks for incentive stock options, accelerated depreciation on assets, intangible drilling costs and the like.

But not now. Lawmakers enacted adjustments that prevented 28 million new taxpayers from owing AMT for 2013 in last year's fiscal-cliff legislation. But they didn't undo the effects of many earlier years of inflation that still pulls in many others, says Roberton Williams, a Tax Policy Center expert.

As a result, the AMT now applies to eight times as many taxpayers as it did 20 years ago, and common AMT "triggers" often are less esoteric than in the past. "They can be as simple as having three or more children, taking a large capital gain, or—especially—deducting state and local taxes," says Dave Kautter, managing director at American University's Kogod Tax Center, who studies the AMT.

Some taxpayers, like Mr. Linton, are blindsided by the AMT because of this expansion. Others don't see it coming because the levy's impact is unpredictable, the result of odd interactions between two utterly different systems......SNIP....The Article Continues @ at the Wall St Journal. To read the rest of the article Click Here.

Morningstar's 3 Tax-Efficient Portfolios for Retirees / Conservative, Moderate, & Aggressive

MorningStar's Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success outlines  3 Tax-Efficient Portfolios for Retirees / Conservative, Moderate, & Aggressive. Follow Christine on Twitter: @christine_benz.

CONSERVATIVE: This investment mix is designed to limit risk and keep the tax collector at bay.

Investors don't get a lot of gimmes, namely simple, low-risk, or no-risk ways to boost their take-home returns. But one of the key ones is managing your portfolio for optimal tax efficiency, thereby (legally) reducing Uncle Sam's cut of your return during the life of your portfolio. Banks and brokerage firms hire armies of lawyers to help wealthy individuals and families limit the taxes they pay on their investments, but they often charge a steep fee for their services. Basic tax-management techniques are a cinch to practice on your own.

Staying attuned to tax efficiency is particularly crucial for those nearing or in retirement. For one thing, most retirees are in drawdown mode, and some strategies for tapping your accounts for income incur fewer tax-related costs than others. Moreover, there's only so much money you can shelter in tax-protected vehicles, so many people come into retirement with substantial shares of their portfolios in taxable accounts. (The higher the level of wealth, the more this is the case.) Finally, retirees and pre-retirees are generally steering ever-larger shares of their portfolios into bonds and cash investments, and income from these asset classes is taxed at a higher rate than is the case for withdrawals from equity accounts.

Proper asset location, which determines the types of investments best-suited for particular accounts, and sequencing withdrawals from your various retirement accounts are key components of tax management for retirees and pre-retirees.

And to the extent that you hold retirement assets in your taxable accounts, it's prudent to concentrate the most tax-efficient investments there while reserving less-tax-friendly investments for your IRA or company retirement plan.

With that in mind, here's an example of what a conservative retiree's taxable portfolio might look like. It's appropriate for very risk-conscious retirees with a time horizon (estimated life expectancy) of 10-15 years. Thus, stability and preserving purchasing power are key goals for this portfolio. 

However, individuals with that same time horizon might have higher or lower equity weightings, depending on their specific financial and family situations. Investors should feel free to customize the allocations and individual holdings as they see fit or simply use them as a guide when benchmarking their own portfolios.

A Conservative Tax-Efficient Retirement Portfolio

Holding

                                                                                    Allocation %

Vanguard Tax-Managed Capital Appreciation (VTCLX)

                                  20

Vanguard Tax-Managed Small Cap (VTMSX)

                                                5

Vanguard Developed Markets Index (VDMIX)

                                               5

Fidelity Limited Term Municipal Income (FSTFX)

                                          13

Fidelity Intermediate Muni Income (FLTMX)

                                                50

Vanguard Tax-Exempt Money Market (VMSXX)

                                              7

Total

                                                                                                    100

Asset AllocationAs with other model portfolios, I've relied on Morningstar's Lifetime Allocation Indexes to guide the portfolio's asset allocation. However, your own taxable assets may be more or less stock-heavy than the portfolio featured here.

And while the portfolio includes a small cash position, it's there to improve the portfolio's overall risk/reward profile rather than to cover an investor's near-term cash needs. Your own positions in more liquid assets like cash and bonds may well be larger. That's because the conventional wisdom on sequencing in-retirement withdrawals calls for tapping any taxable accounts early on, the better to stretch out the tax-savings benefits of tax-sheltered vehicles.

Fixed-Income HoldingsMunicipal bonds and bond funds will make sense for the fixed-income component of many investors' taxable portfolios because income will be free of federal and, in some cases, state tax (provided you stick with bonds issued by municipalities in your state). Use the Tax-Equivalent Yield function on Morningstar's Bond Calculatorto determine whether you're better off in taxable bonds or munis once you factor in taxes. If you're in the 25% tax bracket or above, munis will often be better than taxable bonds.

For this portfolio's fixed-income portion, I've relied on actively managed Fidelity municipal-bond funds because they're well-managed and their costs are reasonable. In terms of specific funds, Vanguard's suite of municipal bond funds is also very good and features even lower costs, and therefore would serve as a worthwhile substitute. For the cash component of the portfolio, I'm switching to Vanguard's municipal money market fund; in a low-return world, its rock-bottom costs give it a meaningful edge over other funds, including Fidelity's, which is fairly low-cost itself.

Note that in contrast with my past mutual fund and ETF portfolios, this one does not feature inflation-protected bonds. Yes, inflation protection is important for retiree portfolios, but Treasury Inflation-Protected Securities are a bad bet for taxable portfolios. I-bonds, meanwhile, are more tax-friendly, but investors are limited in their purchase amounts, crimping their appeal for larger investors.

Stock HoldingsTaxable investors have even more choices on the equity side. Building a portfolio composed of individual stocks gives investors the maximum level of control over when they realize capital gains and losses, though many retirees prefer the low maintenance of mutual funds. 

On the funds side, traditional index funds, exchange-traded funds, and tax-managed funds all do good jobs of limiting the tax collector's cut of investor returns. Ultimately, I decided to populate the portfolio's equity component with tax-managed funds for U.S.-equity exposure and an index fund for international exposure. Tax-managed funds have exhibited tax-cost ratios that are equal to or lower than those of comparable ETFs or traditional index funds. I also like the fact that tax-managed funds can adjust their strategies to suit the current tax climate, giving them an element of flexibility that traditional ETFs and index funds do not have. 

MODERATE : This portfolio balances capital preservation with growth potential.

"Don't let the tax tail wag the dog."  That conventional wisdom is sound advice. For example, if you were considering adding exchange-traded funds to your taxable portfolio to improve its tax efficiency, those holdings should also make sense from an investment standpoint.

At the same time, I can't help but think that managing for maximum tax efficiency is an undervalued aspect of portfolio management, particularly right now. The bear market of 2007-09 limited taxable capital gains and no doubt lulled many investors into a false sense of complacency about the impact that taxes can have on their returns. But given stocks' gains since the market bottomed in early 2009--and the fact that many mutual funds made big payouts in 2013--many investors may wish in hindsight that they had paid closer attention to tax management. Like limiting costs, managing for optimal tax efficiency is one of the few aspects of investing over which investors truly exert some control.

In another column, I shared a model tax-efficient portfolio for conservative retirees with life expectancies of roughly 10-15 years. Many retirees obviously have much longer time horizons than that, however. So our moderate portfolio is appropriate for risk-conscious retirees with time horizons (estimated life expectancies) of 15-20 years. Stability and preserving purchasing power are key goals here, but so is capital appreciation. Investors should feel free to customize the allocations and individual holdings as they see fit or simply use them as a guide when benchmarking their own portfolios. For example, they might readily swap in ETFs to stand in for the tax-managed mutual funds that I've included here. The portfolios highlight some of the key concepts to bear in mind when managing a taxable portfolio at any age, not just during retirement.

A Moderate Tax-Efficient Retirement Portfolio

Holding

                                                                                Allocation %

Vanguard Tax-Managed Capital Appreciation (VTCLX)

                              32

Vanguard Tax-Managed Small Cap (VTMSX)

                                             5

Vanguard Developed Markets Index (VDMIX)

                                          11

Fidelity Limited Term Muni Income (FSTFX)

                                             11

Fidelity Intermediate Muni Income (FLTMX)

                                             38

Vanguard Tax-Exempt Money Market (VMSXX)

                                           3

Total

                                                                                                 100

Asset AllocationThis portfolio, like the previous portfolios, uses Morningstar's Lifetime Allocation Indexes to guide its asset allocation. In keeping with the moderate allocations for someone nearing retirement, it maintains a roughly 50/50 split between stocks and safer securities like bonds and cash.

Bear in mind that this is just a model; your own risk capacity and the extent to which you have income from other sources will be key determinants of your own stock/bond/cash mix. Asset location and how you're sequencing withdrawals will also play a role in the type of assets you hold in your taxable accounts. For example, the conventional rule of thumb is that you should tap your taxable portfolios first during retirement, the better to stretch out the tax savings associated with IRAs. That may argue for holding more in steady asset classes like bonds and cash in your taxable accounts.

Moreover, you'll need to let your own spending needs drive your cash allocation. Although this portfolio does include a small slice in a municipal money market fund, the cash is there solely to improve the portfolio's risk/reward characteristics rather than to provide current income. That helps explain why its cash stake is lower and its total equity allocation is higher than is the case with my model bucket portfolio for moderate investors; the bucket portfolio includes a sizable cash stake to meet near-term cash needs. 

Bond HoldingsTo flesh out the portfolio's fixed-income holdings, I used the same municipal-bond funds here that appeared in the conservative portfolio: actively managed muni funds from Fidelity, which our analysts like for their sensible management and reasonable costs. (Bogleheads shouldn't despair: Vanguard's lineup of low-expense municipal-bond funds is also solid.) I opted for Vanguard's muni money market fund for the cash holdings; even though its yield, like that of most money market funds, is barely positive right now, its low costs should be a long-term competitive advantage. However, cash yields are so low right now--and the associated taxes are, as well-- that investors might reasonably invest in nonmunicipal cash holdings instead. 

Although potentially higher tax rates will tip the scales in favor of municipal bonds for many investors' taxable portfolios, don't automatically assume that you must hold munis in your taxable account. The tax-equivalent yield function in Morningstar's Bond Calculator can help you quantify whether you're better off, on an aftertax basis, holding munis or taxable bonds. You'll also need to gauge your comfort level with municipals: Some investors may obtain peace of mind by holding a mix of taxable and municipal bonds, even if doing so results in a lower aftertax return.

As with the conservative portfolio, this one forgoes inflation-protected bond exposure, even though the indexes I used as a blueprint call for it. That's because Treasury Inflation-Protected Bonds are a poor choice for taxable investors. And while I-bonds are more tax-friendly, investors are limited in their purchases. That's not an impediment for smaller investors, but larger investors will have to get their inflation protection through TIPS and should do so within the confines of an IRA.

Stock HoldingsFor a taxable portfolio's equity holdings, investors have several terrific options from which to choose: individual stocks, traditional index funds, ETFs, and tax-managed funds. Ultimately, I decided that tax-managed funds represented the best combination of low maintenance, diversification, and tax efficiency for the portfolio's domestic-equity exposure. I used a Vanguard index fund for international exposure.

AGGRESSIVE : Here is a model portfolio for younger retirees, pre-retirees, or those with other income sources.

I've written articles featuring several tax-efficient model portfolios over the years, which in turn have sparked many useful comments from readers.

Several of you noted that you'd like to see a greater focus on income production, while others quibbled with my recommendation of tax-managed funds for the portfolios' equity components. (More on this in a moment.) Others of you noted that you're looking to your portfolios for greater return potential than my conservative and moderateportfolios, each of which devoted less than 50% to stocks, could provide.

My aggressive tax-efficient model portfolio is for those of you who seek to be (or have time to be) more aggressive. It's appropriate for retirees and pre-retirees with time horizons (estimated life expectancies) of 25 years or more or for those who can look to other sources of income, such as a pension or part-time work, during their retirement years. Capital appreciation is the key goal here, but the portfolio also pays attention to limiting big market downdrafts.

As with the other two portfolios, this one is built with an emphasis on total return rather than current income for a couple of key reasons. Given low yields, it's currently a tall order to generate a meaningful income stream strictly from the income a portfolio's holdings kick off; to do so, you've got to either have an awful lot of wealth or be willing to take on a lot of risk. Second, I generally favor total-return approaches for taxable portfolios because the total-return strategy allows investors greater control over when (and whether) they receive taxable income.

An Aggressive Tax-Efficient Retirement Portfolio

Holding

                                                                                 Allocation %

Vanguard Tax-Managed Capital Appreciation (VTCLX)

                               35

Vanguard Tax-Managed Small Cap (VTMSX)

                                              5

Vanguard Developed Markets Index (VDMIX)  

                                         15

Fidelity Short-Intermediate Muni Income (FSTFX)

                                       8

Fidelity Limited Term Municipal Income (FLTMX)

                                       35

Vanguard Tax-Exempt Money Market (VMSXX)

                                           2

Total

                                                                                                 100

Asset AllocationThis portfolio, like the previous portfolios, uses Morningstar's Lifetime Allocation Indexes to guide its asset allocation. In keeping with the moderate allocations for a 59-year-old, it holds a bit less than 60% in equities and the rest in safer securities such as bonds and cash.

Retirees with greater appetites for risk (and importantly, a safe stream of income from other sources) can think about nudging the equity weighting higher; the aggressive summary allocations on the Lifetime Allocation Indexes document can help guide you into the right ballpark.

It's also worth noting that even though this portfolio includes a cash allocation (Vanguard's muni money market fund), it's there strictly to improve the portfolio's risk/reward characteristics. Your own spending needs will help you arrive at how much to hold in cash; one to two years' worth of living expenses is a good rule of thumb. The difference in the role of cash helps explain why this portfolio's cash stake is lower and its total equity allocation is higher than is the case with my model bucket portfolio for aggressive investors; the bucket portfolio includes a sizable cash stake to meet near-term cash needs. 

Stock HoldingsAs with the other two portfolios, the aggressive portfolio gets its equity exposure from tax-managed mutual funds and an index fund for foreign exposure. I based that decision on two factors: one, the tax-managed funds' strong past tax-efficiency statistics versus those of exchange-traded funds and traditional index funds, and two, tax-managed funds' abilities to adjust their strategies to suit the current tax climate. I used the index fund for foreign exposure because Vanguard plans to merge Vanguard Tax-Managed International (VTMNX) into  Vanguard Developed Markets Index (VDMIX); the two products offer similar exposure at a very low cost.

Bond HoldingsTo flesh out the portfolio's fixed-income holdings, I used the same municipal-bond funds here that appeared in the conservative and moderate portfolios: actively managed muni funds from Fidelity, which our analysts like for their sensible management and reasonable costs. Vanguard's muni lineup serves as a low-cost, low-maintenance alternative.

Although potentially higher tax rates will tip the scales in favor of municipal bonds for many investors' taxable portfolios, don't automatically assume that you must hold munis in your taxable account. The tax-equivalent yield function in Morningstar's Bond Calculator can help you quantify whether you're better off, on an aftertax basis, holding munis or taxable bonds.

As with the previous two portfolios, this one forgoes inflation-protected bond exposure, even though the indexes I used as a blueprint call for it. That's because Treasury Inflation-Protected Bonds are a poor choice for taxable investors. And though I-bonds are more tax-friendly, purchasers are limited to $10,000 a year. That's not an impediment for smaller investors, but larger investors will have to get their inflation protection through Treasury Inflation-Protected Securities and should do so within the confines of an IRA
.