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Fund Spy

Investing Taxable Money in Active Stock Funds? Bad Idea

Active U.S. equity funds seldom beat a comparable index fund after taxes.

So, you've got a bucket of taxable money to invest and you're thinking of plowing it into active stock funds in hopes of beating the market. Think again.

We conducted a study recently in which we examined the aftertax returns of all U.S. equity funds compared with relevant Vanguard index funds. What we found was that very few of those funds beat the Vanguard index alternative after taxes. In fact, your odds of succeeding would have been about the same as landing a coin on heads three times in a row.