Diversification is often spoken of as the only free lunch in investing, yet we show that it is not free and is properly considered only in light of its costs. More-exotic asset classes typically come with a higher price tag. We show that fees on diversifying asset classes are high relative to...

Asset allocation is profoundly influenced by at least two underappreciated concepts. First, tax-deferred accounts — for example, 401(k)s — are like partnerships in which the investor owns (1–tn) of the partnership principal and the government owns the remainder, where tn is the marginal...