Why Index Funds Are NOT the Best Answer

Myth #4: Index funds are tax-efficient.

The fact is, it’s not taxes that matter, it’s after-tax returns. That is, what you keep after you pay all your taxes.

Some index funds are quite tax efficient, and others aren’t. But there are plenty of actively managed funds that may be less tax-efficient than an index but still provide higher after-tax returns.

I should note that even the tax experts at Vanguard are beginning to change their tune, talking more about after-tax returns than strictly about tax efficiency.

Forget tax efficiency. It’s after-tax returns that count. Learn more here.

Next: Myth #5 – Index funds are cheap.