Chapter 26. Identify the Best Investments for Taxable Accounts
Although it can be a humbling experience for an author, seeing how many page views various articles receive on
Morningstar.com provides some great insights into investor psychology. Any headline with "all-weather" or "sleep easy" (as in "these all-weather funds let you sleep easy") always resonates, particularly in a tough market like 2008. And any article with a number in the headline, as in "Five Stocks to Buy and Hold," offers the promise of instant gratification and therefore is also a click magnet. Surveying our most-trafficked articles always gives me a good idea of what's on investors' minds.
And what's not. If clicks are a guide to investor sentiment, some topics are almost always guaranteed to draw a yawn from our readers. On the short list, particularly lately, is anything tax-related. Given that U.S. stocks had only slight gains over that stretch, most investors weren't overly concerned with investment-related taxes.
Even in a flat or declining market, however, investment-related taxes can take a toll. The typical domestic-equity fund in Morningstar's database gained an average of 1.4 percent per year in the decade through mid-2009, yet taxes gobbled up more than 1 percentage point of that return. In an up market, taxes may take an even bigger bite out of investors' returns. And no matter what the market climate, you're probably going to keep some of your taxable account in bonds or cash; income from these securities ...