An Indexed 401K Will Crush Your Stock Portfolio

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Includes: CAT, DIA, GS, JPM, SPY, UNH, UTX
by: The Struggling Millennial

Summary

The importance of tax-efficiency when investing in stocks and funds is often misunderstood by individual investors.

A tax-advantaged index fund, while "boring" to many, is an almost unbeatable investment by any stock or fund held in a taxable account.

The statements above are illustrated below so investors can visualize the tremendous advantage of tax efficiency.

I don't seek to give financial advice to people in my life. However, I am asked investment-related questions routinely by friends, family, and colleagues, often who are much older than me. It's amusing to me. I'm very buttoned-down, organized and boring for my age. I could pass as someone ten years older than I am (I turn 31 next week), but I look like I'm in my mid-20's (I have a 'baby-face'). The irony.

I rarely answer their questions. I'm not qualified to manage their finances. I'm not a stock-picker. I don't scour the web searching for the next hot trend or emerging market. Even if I thought I were smart enough to do it, it just doesn't interest me. Instead, I give them three basic truths:

  1. Choose stable companies that have been around for decades and that you think will still be around after you've passed. Make sure they pay a dividend, have been paying a dividend for many years and have routinely raised their dividend. If you don't want to choose individual companies, choose a fund with low fees comprised of these types of companies.
  2. Auto-invest. People are subject to emotions and laziness - set your portfolio up so it auto-debits in some way and buys stock for you every month or every pay cycle.
  3. Max out all your tax-advantaged accounts first before you even think of opening a taxable brokerage account.

Truth #3 may be the most-ignored truth.

Investor Returns Fail Due To Strategy

I don't care how good of a stock-picker you are. If you don't have a strategy as to how to exploit market gains, you will fail.

What am I driving at here? There are a lot of Americans out there that are investing money in taxable brokerage accounts before maxing out their 401K and IRA first. I want to make a clear point:

In nearly every case, you shouldn't invest a single dollar in a taxable brokerage account before contributing $23,500.00 annually combined in your 401K and IRA accounts.

Tax Advantageousness Is Grossly Underestimated

I cannot figure out why so many people reading this article right now are buying stock in taxable accounts without maxing out their retirement accounts, first.

Is it out of boredom? Do you find the lack of funds available in your 401K boring?

Is it out of confidence? Do you believe your investing chops are so solid you can beat the CAGR of a tax-advantaged fund in a taxable account?

Is it out of ignorance? Have you never considered tax efficiency in your investments?

I am of the belief that most of us aren't good technical learners. Technical information is boring. We as humans like to get our imagination going - I can tell you I always learn best by example, and I like to create relevant examples to make a point. So, below I will create what I believe to be a realistic scenario to illustrate my point as to why a boring index fund in a tax-advantaged account is almost certainly going to crush your careful picks in your taxable account.

An Example In Tax Efficiency

Let us assume a hypothetical investor with the following attributes:

1. An average salary of $60,000/year. I chose this number because any less and I think it is difficult to consider maxing out a 401K and an IRA.

2. An average effective federal tax rate of 13.41%. I arrived at this number by using Smartasset's federal income tax calculator in a zero-income tax state (in this case, Florida). This meshes well with USA Today - they claim the average American's effective federal income tax rate is 13.5%.
3. An average effective state and local tax rate of 9.9%. According to USA Today, that is a US Census Bureau estimate. Together, our hypothetical investor has a combined effective tax rate of 23.31%.

4. We will target the 2016 investment year (1/1/16 - 12/31/16) because it was recent, and because it actually wasn't a great year for the S&P 500. It was pretty average in a historical sense, and one of the poorer performers in the current bull market cycle.

5. 401K's are notorious for a lack of investment options. We will assume our hypothetical investor invests 100% of their income in a fund mirroring the S&P 500 (SPY). That is what I do in real life - I am a 401K-maxxer (at the expense of luxury). For convenience, we will use the ever-popular SPY ETF as our fund, although your 401K is likely to use a fund by Vanguard, Fidelity or an equivalent company.

6. I want this example to function like a real 401K with periodic buy-ins. No lump-sum shenanigans. We will assume our hypothetical investor receives a bi-weekly paycheck on Friday's. Dividing $18,000 by 26 individual pay cycles, our investor will invest $692.31 every other Friday, and will receive the market closing price each time. Where Friday is a national holiday and the market is closed, the money will be invested on the business day prior.

7. SPY yielded the following distributions in 2016:

Date SPY Dividends
3/18/2016 $ 1.05000
6/17/2016 $ 1.07844
9/16/2016 $ 1.08207
12/16/2016 $ 1.32893

All dividends will receive the closing price on that pay date and be auto-reinvested into shiny, new stock.

8. Employer contributions are excluded for simplicity and to eliminate an uncontrollable variable.

9. We are starting with a zero balance. This is a moment in time.

Ready? Set? GO!

Let's see how our hypothetical investor performed in FY2016.

Date SPY Close Buy-In Dividends Shares Purchased
Friday, January 15, 2016 $ 187.81 $ 692.31 3.686213192
Friday, January 29, 2016 $ 193.72 $ 692.31 3.57375433
Friday, February 12, 2016 $ 186.63 $ 692.31 3.709519765
Friday, February 26, 2016 $ 195.09 $ 692.31 3.548658089
Friday, March 11, 2016 $ 202.76 $ 692.31 3.414419557
Friday, March 18, 2016 $ 204.38 $ - $ 18.83 0.092128355
Thursday, March 24, 2016 $ 203.12 $ 692.31 3.408368006
Friday, April 08, 2016 $ 204.50 $ 692.31 3.385367689
Friday, April 22, 2016 $ 208.97 $ 692.31 3.312952524
Friday, May 06, 2016 $ 205.72 $ 692.31 3.365291119
Friday, May 20, 2016 $ 205.49 $ 692.31 3.369057742
Friday, June 03, 2016 $ 210.28 $ 692.31 3.292313561
Friday, June 17, 2016 $ 206.52 $ 692.31 $ 41.15 3.551514812
Friday, July 01, 2016 $ 209.92 $ 692.31 3.297959694
Friday, July 15, 2016 $ 215.83 $ 692.31 3.207652717
Friday, July 29, 2016 $ 217.12 $ 692.31 3.188594824
Friday, August 12, 2016 $ 218.46 $ 692.31 3.1690363
Friday, August 26, 2016 $ 217.29 $ 692.31 3.18610021
Friday, September 09, 2016 $ 213.28 $ 692.31 3.246003824
Friday, September 16, 2016 $ 213.37 $ - $ 66.01 0.309376102
Friday, September 23, 2016 $ 215.99 $ 692.31 3.205276523
Friday, October 07, 2016 $ 215.04 $ 692.31 3.219436918
Friday, October 21, 2016 $ 213.98 $ 692.31 3.235385107
Friday, November 04, 2016 $ 208.55 $ 692.31 3.319624466
Friday, November 18, 2016 $ 218.50 $ 692.31 3.168456258
Friday, December 02, 2016 $ 219.68 $ 692.31 3.151437156
Friday, December 16, 2016 $ 225.04 $ 692.31 $ 107.13 3.552425994
Friday, December 30, 2016 $ 223.53 $ 692.31 3.097157855
TOTALS $ 18,000.00 87.26348269

Total Value: $19,506.01

CAGR: 8.37%

Overall, our investor generated a compounded annual growth rate of 8.37%, or $1,506.01 in capital appreciation. Luckily, our investor produced this return in a tax-shelter, so there are no taxes due. The investor keeps all the profit until they cash out many years into the future.

The Benchmark Is Set

Now that the benchmark is set, let's try and calculate our chances of besting our tax-sheltered return. 8.37% CAGR is nothing to write home about, so on the surface, it looks like an easily beatable number.

It would be impossible to compare every individual stock of the S&P 500 against the index. However, we can look to the Dow Jones Industrial Average (DIA) for some help. Why did I choose the DOW?

1. I'm stacking the deck against me. The DOW crushed the S&P 500 in total return in 2016. I'm providing a built-in advantage to my counter-argument.

2. The DOW showcases 30 of the S&P 500's biggest and best players. While cramped, we can actually map out 30 stocks to get a handle on the DOW components individually.

There we can see a few clear winners that crushed the overall index. From here, I want to continue to stack the deck against me. We are going to cherry-pick the four strongest performers from the DOW in FY2016.

  1. Caterpillar Inc. (CAT)
  2. JPMorgan Chase & Co. (JPM)
  3. UnitedHealth Group Inc. (UNH)
  4. Goldman Sachs Group Inc. (GS)

We will also provide a middle-of the road performer as a relative benchmark.

1. United Technologies Corporation (UTX)

Using the same methodology applied to our SPY-DRIPping 401K, how would you have performed in a taxable account?

Caterpillar Inc.

Since you are using post-tax dollars, you must pay an effective tax rate of 23.31% on your income, first. Your $18,000 contribution is only worth $13,804.20 in a taxable brokerage account! Your bi-weekly contributions have been reduced to $530.93.

It gets worse. Your dividends are only worth 85% of what they would be in a tax-free account because you're subject to a 15% capital gains tax on distributions. Your annual distributions are as follows:

Date CAT Dividends Dividends Post-Cap. Gains
1/15/2016 $ 0.77 $ 0.6545
4/21/2016 $ 0.77 $ 0.6545
7/18/2016 $ 0.77 $ 0.6545
10/20/2016 $ 0.77 $ 0.6545

So how did you perform?

Date CAT Close Buy-In Dividends Shares Purchased
1/15/2016 $ 59.87 $ 530.93 $ - 8.868060433
1/29/2016 $ 62.24 $ 530.93 8.530378409
2/12/2016 $ 63.15 $ 530.93 8.407454512
2/26/2016 $ 66.87 $ 530.93 7.939744959
3/11/2016 $ 72.80 $ 530.93 7.293004771
3/24/2016 $ 75.29 $ 530.93 7.051809831
4/8/2016 $ 74.35 $ 530.93 7.140965481
4/21/2016 $ 78.66 - $ 36.15 0.459559666
4/22/2016 $ 78.32 $ 530.93 6.778993478
5/6/2016 $ 73.36 $ 530.93 7.237333179
5/20/2016 $ 69.87 $ 530.93 7.598837075
6/3/2016 $ 75.04 $ 530.93 7.075303334
6/17/2016 $ 75.93 $ 530.93 6.992371516
7/1/2016 $ 76.45 $ 530.93 6.944810858
7/15/2016 $ 80.70 $ 530.93 6.579068017
7/18/2016 $ 79.82 - $ 68.66 0.860129563
7/29/2016 $ 82.76 $ 530.93 6.415306385
8/12/2016 $ 83.00 $ 530.93 6.396756256
8/26/2016 $ 82.66 $ 530.93 6.423067306
9/9/2016 $ 80.79 $ 530.93 6.571738614
9/23/2016 $ 82.44 $ 530.93 6.440208107
10/7/2016 $ 88.47 $ 530.93 6.001251986
10/20/2016 $ 86.63 - $ 94.25 1.087983696
10/21/2016 $ 86.33 $ 530.93 6.15001456
11/4/2016 $ 82.31 $ 530.93 6.450380053
11/18/2016 $ 92.34 $ 530.93 5.749737841
12/2/2016 $ 95.14 $ 530.93 5.580521072
12/16/2016 $ 92.58 $ 530.93 5.734832121
12/30/2016 $ 92.74 $ 530.93 5.72493833
TOTALS $ 13,804.20 180.4845614

Total Value: $16,738.14

CAGR: -7.01%

Despite CAT's incredible 2016 stock performance, you lost $1,261.86. Why do I say lost? Because you could have simply deferred the $18,000.00 into cash in your 401K and come out ahead. The money is worth less now than it would have been as gross income because you chose to pay taxes on it and tried to beat the income tax rate itself...and failed.

Goldman Sachs Group Inc.

Goldman Sachs Group, Inc. had outstanding performance in FY2016. GS has a significant advantage to CAT - their huge appreciation gains came toward the end of the year. An investor regularly accumulating fixed purchases would build up an investment at a much lower price, yielding superior CAGR by year-end. This effect is clearly seen in the data below.

Post-tax contribution: $13,804.20/year

Bi-weekly contribution: $530.93

Date GS Dividends Dividends Post-Cap. Gains
2/29/2016 $ 0.65 $ 0.5525
5/27/2016 $ 0.65 $ 0.5525
8/30/2016 $ 0.65 $ 0.5525
11/29/2016 $ 0.65 $ 0.5525
Date GS Close Buy-In Dividends Shares Purchased
1/15/2016 $ 155.61 $ 530.93 3.411932175
1/29/2016 $ 161.56 $ 530.93 3.286276156
2/12/2016 $ 146.13 $ 530.93 3.633276884
2/26/2016 $ 150.25 $ 530.93 3.533649046
2/29/2016 $ 149.53 - $ 7.66 0.051230433
3/11/2016 $ 153.94 $ 530.93 3.448946098
3/24/2016 $ 153.00 $ 530.93 3.470135747
4/8/2016 $ 150.28 $ 530.93 3.532943657
4/22/2016 $ 166.75 $ 530.93 3.183992619
5/6/2016 $ 158.85 $ 530.93 3.342340253
5/20/2016 $ 154.51 $ 530.93 3.43622281
5/27/2016 $ 159.53 - $ 18.97 0.118898311
6/3/2016 $ 155.67 $ 530.93 3.410617178
6/17/2016 $ 145.64 $ 530.93 3.64550105
7/1/2016 $ 148.25 $ 530.93 3.581320534
7/15/2016 $ 161.64 $ 530.93 3.284649669
7/29/2016 $ 158.81 $ 530.93 3.343182268
8/12/2016 $ 163.25 $ 530.93 3.252255861
8/26/2016 $ 165.97 $ 530.93 3.198956233
8/30/2016 $ 169.37 - $ 32.14 0.189743731
9/9/2016 $ 168.57 $ 530.93 3.14961587
9/23/2016 $ 165.13 $ 530.93 3.21522893
10/7/2016 $ 169.83 $ 530.93 3.126248384
10/21/2016 $ 174.67 $ 530.93 3.039622003
11/4/2016 $ 175.92 $ 530.93 3.018023961
11/18/2016 $ 210.35 $ 530.93 2.524034961
11/29/2016 $ 211.75 - $ 42.23 0.199418828
12/2/2016 $ 223.36 $ 530.93 2.377018118
12/16/2016 $ 238.90 $ 530.93 2.222397583
12/30/2016 $ 239.45 $ 530.93 2.217292862
TOTALS $ 13,804.20 83.44497221

Total Value: $19,980.90

CAGR: 11.01%

In this example, GS would have beat your pre-tax SPY-indexed 401K by a significant margin, yielding an 11.01% CAGR and a $1,980.90 gain. But how has GS performed since?

Using the same strategy, GS would have woefully underperformed a tax-sheltered SPY YTD. Though one-offs are clearly possible, this would not be a very sustainable strategy.

UnitedHealth Group Inc.

The same strategy for UnitedHealth Group, Inc., one of the 2016 DOW's highest fliers, would yield the following performance given the same investing metrics.

Post-tax contribution: $13,804.20/year

Bi-weekly contribution: $530.93


Date UNH Dividends Dividends Post-Cap. Gains
3/9/2016 $ 0.500 $ 0.4250
6/15/2016 $ 0.625 $ 0.5313
9/7/2016 $ 0.625 $ 0.5313
11/30/2016 $ 0.625 $ 0.5313
Date UNH Close Buy-In Dividends Shares Purchased
1/15/2016 $ 106.56 $ 530.93 4.98231371
1/29/2016 $ 112.31 $ 530.93 4.727486898
2/12/2016 $ 109.05 $ 530.93 4.86869409
2/26/2016 $ 118.32 $ 530.93 4.487079875
3/9/2016 $ 121.10 $ - $ 8.10 0.066910563
3/11/2016 $ 122.50 $ 530.93 4.333972175
3/24/2016 $ 125.92 $ 530.93 4.216346216
4/8/2016 $ 123.07 $ 530.93 4.313971739
4/22/2016 $ 131.35 $ 530.93 4.042197096
5/6/2016 $ 129.30 $ 530.93 4.106179455
5/20/2016 $ 128.22 $ 530.93 4.140674683
6/3/2016 $ 134.00 $ 530.93 3.962145555
6/15/2016 $ 137.26 $ - $ 25.63 0.186738563
6/17/2016 $ 135.45 $ 530.93 3.919835115
7/1/2016 $ 138.57 $ 530.93 3.831620822
7/15/2016 $ 139.03 $ 530.93 3.818878639
7/29/2016 $ 140.87 $ 530.93 3.769009665
8/12/2016 $ 140.55 $ 530.93 3.777450101
8/26/2016 $ 134.39 $ 530.93 3.950535357
9/7/2016 $ 134.99 $ - $ 37.99 0.281394614
9/9/2016 $ 132.05 $ 530.93 4.020665319
9/23/2016 $ 138.86 $ 530.93 3.823509409
10/7/2016 $ 135.05 $ 530.93 3.931225338
10/21/2016 $ 143.66 $ 530.93 3.6956816
11/4/2016 $ 136.09 $ 530.93 3.901250639
11/18/2016 $ 147.69 $ 530.93 3.594789173
11/30/2016 $ 158.32 $ - $ 50.34 0.317939825
12/2/2016 $ 159.47 $ 530.93 3.329251443
12/16/2016 $ 162.66 $ 530.93 3.264063392
12/30/2016 $ 158.79 $ 530.93 3.343605371
TOTALS $ 13,804.20 105.0054164

Total Value: $16,673.80

CAGR: -7.37%

An entire year of investing would give you a $1,326.20 loss versus the original pre-tax cash value.


JPMorgan Chase & Co.

Our final 2016 DOW high-flier is JPMorgan Chase & Co. Below, we find the following performance given the same investing metrics.

Post-tax contribution: $13,804.20/year

Bi-weekly contribution: $530.93

Date JPM Dividends Dividends Post-Cap. Gains
1/4/2016 $ 0.44 $ 0.3740
4/4/2016 $ 0.44 $ 0.3740
7/1/2016 $ 0.48 $ 0.4080
10/4/2016 $ 0.48 $ 0.4080
Date JPM Close Buy-In Dividends Shares Purchased
1/4/2016 $ 63.62 $ - $ - 0
1/15/2016 $ 54.85 $ 530.93 9.679261275
1/29/2016 $ 57.22 $ 530.93 9.279076246
2/12/2016 $ 55.29 $ 530.93 9.603496599
2/26/2016 $ 55.33 $ 530.93 9.595151782
3/11/2016 $ 57.06 $ 530.93 9.304095875
3/24/2016 $ 57.20 $ 530.93 9.282196318
4/4/2016 $ 59.20 $ - $ 21.22 0.358479493
4/8/2016 $ 55.94 $ 530.93 9.491642828
4/22/2016 $ 61.97 $ 530.93 8.567257533
5/6/2016 $ 59.68 $ 530.93 8.89687415
5/20/2016 $ 61.53 $ 530.93 8.629310315
6/3/2016 $ 62.62 $ 530.93 8.478456988
6/17/2016 $ 60.33 $ 530.93 8.799735125
7/1/2016 $ 59.81 $ 530.93 $ 44.87 9.627302153
7/15/2016 $ 62.66 $ 530.93 8.473264875
7/29/2016 $ 62.45 $ 530.93 8.501079734
8/12/2016 $ 63.77 $ 530.93 8.325384548
8/26/2016 $ 64.65 $ 530.93 8.212232901
9/9/2016 $ 65.07 $ 530.93 8.15925151
9/23/2016 $ 65.66 $ 530.93 8.086454299
10/4/2016 $ 66.60 $ - $ 69.09 1.037459487
10/7/2016 $ 66.98 $ 530.93 7.926727322
10/21/2016 $ 67.35 $ 530.93 7.882748575
11/4/2016 $ 66.64 $ 530.93 7.967671127
11/18/2016 $ 76.42 $ 530.93 6.94748989
12/2/2016 $ 80.25 $ 530.93 6.616292493
12/16/2016 $ 83.53 $ 530.93 6.356126973
12/30/2016 $ 84.86 $ 530.93 6.256685869
TOTALS $ 13,804.20 220.3412063

Total Value: $18,697.75

CAGR: 3.88%

While JPM would yield a positive CAGR versus the original pre-tax investment and an appreciation of $697.75 in FY2016, the performance is less than half a tax-advantaged investment directly in the S&P 500. Similarly to our Goldman example, JPM is being handily beat by the S&P 500 YTD.

United Technologies Corporation

United Technologies Corporation was not a FY2016 DOW high-flier. While its performance was good, it was a middle-of-the-road performer for the index. Below, we can see how an average investment is impacted by inefficient tax structure.

Date UTX Dividends Dividends Post-Cap. Gains
2/17/2016 $ 0.64 $ 0.5440
5/18/2016 $ 0.66 $ 0.5610
8/17/2016 $ 0.66 $ 0.5610
11/16/2016 $ 0.66 $ 0.5610
Date UTX Close Buy-In Dividends Shares Purchased
1/15/2016 $ 82.47 $ 530.93 6.438137033
1/29/2016 $ 84.45 $ 530.93 6.286892878
2/12/2016 $ 82.77 $ 530.93 6.414167552
2/17/2016 $ 88.12 $ - $ 10.41 0.11815392
2/26/2016 $ 94.78 $ 530.93 5.601573545
3/11/2016 $ 93.87 $ 530.93 5.655996825
3/24/2016 $ 96.11 $ 530.93 5.524103853
4/8/2016 $ 98.30 $ 530.93 5.400885649
4/22/2016 $ 102.55 $ 530.93 5.177083378
5/6/2016 $ 98.11 $ 530.93 5.411567706
5/18/2016 $ 99.29 $ - $ 29.19 0.293967403
5/20/2016 $ 96.79 $ 530.93 5.485451293
6/3/2016 $ 98.09 $ 530.93 5.412807335
6/17/2016 $ 98.84 $ 530.93 5.371623249
7/1/2016 $ 100.33 $ 530.93 5.291621558
7/15/2016 $ 103.04 $ 530.93 5.152684879
7/29/2016 $ 105.14 $ 530.93 5.049774386
8/12/2016 $ 106.33 $ 530.93 4.993187071
8/17/2016 $ 108.94 $ - $ 49.97 0.458726824
8/26/2016 $ 105.44 $ 530.93 5.035145911
9/9/2016 $ 100.90 $ 530.93 5.262188791
9/23/2016 $ 100.78 $ 530.93 5.268345307
10/7/2016 $ 98.83 $ 530.93 5.372056536
10/21/2016 $ 96.96 $ 530.93 5.47604697
11/4/2016 $ 99.57 $ 530.93 5.332295163
11/16/2016 $ 106.96 $ - $ 68.04 0.636131228
11/18/2016 $ 105.29 $ 530.93 5.042344877
12/2/2016 $ 106.99 $ 530.93 4.96220405
12/16/2016 $ 107.29 $ 530.93 4.948486337
12/30/2016 $ 108.38 $ 530.93 4.898829977
TOTALS $ 13,804.20 141.7724815

Total Value: $15,365.17

CAGR: -14.64%

A middle-of-the-road performer like UTX would have resulted in a paper loss of $2,634.83 versus original pre-tax value.

Conclusion

The importance of tax-efficiency when investing cannot be understated. Assuming average effective tax rates, there is only one DOW component that would have beaten a tax-advantaged SPY investment in FY2016 - Goldman Sachs - and it has been getting crushed YTD ever since.

You may be thinking to yourself, "I'm a value investor and know how to analyze stock. I would've just taken the after-tax $18,000 contribution and bought a lump sum of the stock low and crushed all these examples."

Nice try. You're a working-class American making $60,000/year. You don't have $18,000 ($13,804.20 after taxes) just sitting around collecting dust to dump into stock. If you have that kind of money lying around:

  1. You are probably already contributing over the $23,500/year limit for a 401K and IRA and this strategy doesn't apply to you because you're already maxing them out.
  2. Your high income pushes your effective tax rate so much higher you're at a tremendous disadvantage to our hypothetical investor. It's even more important for you to take every tax-advantaged dollar that you can.

Point #2 above is crucial to understand - as income increases, effective tax rates increase in most cases, so tax-advantaged accounts become more and more important as earning power grows. Since we are on Seeking Alpha, I would be willing to bet the readership has above-median earning potential. For that reason, it should be inexcusable in most cases for this readership to partake in taxable brokerage accounts without maxing out their $23,500 limit in 401K and IRA contributions, first.

There are still opportunities to invest in individual stocks within a tax shelter - we can do so in Traditional or Roth IRA brokerage accounts - but also note that riskier investing in these types of accounts cannot be deducted from income when we "take a loss." For those reasons, even inside my Roth IRA I predominantly index my annual contribution outside of a handful of Dividend Aristocrats.

For many readers, the information above may be well-known or obvious. However, I don't think many people realize how much taxation eats away at our returns. Hopefully visualizing this information above puts things into perspective more clearly - a tax-advantaged index fund is nearly impossible to beat with any consistency when the alternative is an investment subject to taxation.

Disclosure: I am/we are long SPY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: All information found herein, including any ideas, opinions, views, predictions, commentaries, forecasts, suggestions or stock picks, expressed or implied, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. I am not a licensed investment adviser.