April 15 is past, and there's nothing you can do about the capital gains taxes you had to pay for last year.

But what about for the next 12 months?

No doubt you're unhappy to have paid taxes on 2007 gains that, in many cases, disappeared in the first few months of 2008.

That might leave you thinking you should move your money into funds with lower turnover and higher tax efficiency.

But the most important thing to remember, and something I've said for years, is that it isn't tax efficiency that investors should strive for, it's after-tax returns. That is, earning as much as we can even after the IRS is done with us.

Because of all the losses the fund has sustained, Growth Equity (VGEQX) has the best five-year tax efficiency of any Vanguard fund, at 99.7%.

But that tax efficiency didn't help the fund in the after-tax total return derby. It substantially underperformed its large-growth peers and generated a return that was below that of the stock market.

Are Indexes the Way to Go?

In a word: NO! First off, not all index funds are tax efficient. Second, those that are tax-efficient aren't necessarily going to put more money in your pocket.

Over the last three years, for instance, one of Vanguard's most efficient index funds, SmallCap Growth Index (VISGX), was losing just 1% of its total return to taxes. Yet, many funds with lower tax efficiency outperformed it on an after-tax basis.

Turn Away From Turnover

The old-think was that funds with low turnover, whose managers held on to stocks for years rather than months, were more tax-efficient than funds with higher turnover.

But not all turnover results in a taxable gain. Higher turnover could mean that a fund manager is harvesting his or her losses. Turnover is not the be-all, end-all indicator of tax efficiency.

The Best Funds for Tax-Year 2008

Enough of the talk. Just which Vanguard funds produce the best after-tax returns, and are they the same as the most tax efficient funds…