While municipal bonds do not offer the capital appreciation opportunities of stocks, they do serve a wealth protection strategy. And while there's no real growth in municipal bonds, they have at least maintained their real value, and even gained a little bit.

What we know: Fundamentals of successful investing rarely change.

Solutions
Nominal returns for most asset classes over 20 years are solid. But strong nominal returns are only part of the picture.
Every investment should be analyzed based on real, real returns.
You need to know what you can do to increase real, real returns for your clients.

What You Can Do
Construct portfolios designed to generate real, real returns after inflation, taxes and investment expenses.
Understand the real, real returns of all asset classes-evaluate each investment on a real, real return basis.
Search for "tax efficient" active managers.
Consider where investments should be held and how they are titled in light of real, real returns.
Change the nature of the conversation with your clients to one that focuses on real, real returns rather than absolute returns.

Take Away
Advisors have to start calculating returns on an after-tax, after-expense basis instead of on a total return basis.
Your clients do not live in a tax-free environment.
Every investment should be analyzed based on real, real returns.
Individuals try to offset taxes with incrementally higher total returns, which is unrealistic and has never worked.
A re-education is needed to shift gears and go against the historical conventional wisdom.

Ken Ziesenheim, recently retired managing director for Thornburg Investment Management and president of Thornburg Securities Corp., now serves in the capacity of a senior advisor to Thornburg. Reach him at (863) 385-6306 or [email protected].

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