Accounts Quote by William J. Bernstein
“While it is probably a poor idea to own actively managed funds in general, it is truly a terrible idea to own them in taxable accounts... taxes are a drag on performance of up to 4 percentage points each year... many index funds allow your capital gains to grow largely undisturbed until you sell... For the taxable investor, indexing means never having to say you're sorry.”
About This Quote
Source Book: The Four Pillars of Investing, 2002
Actively managed funds in taxable accounts underperform due to taxes; indexing avoids this drag and preserves returns.
In simple terms: Tax‑efficient investing favors index funds.
Key Takeaway
Prefer tax‑efficient index investing.
Themes
investing
taxation
portfolio management
Mood
practical
informative
Type
financial
educational
When to use this quote
- retirement planning
- tax‑advantaged accounts
- financial advising
- wealth building
Key Concepts
Tax drag
efficient management
Questions to Reflect On
- How can investors balance tax efficiency with potential active returns?
- When might active management be justified?
A Different Perspective
Active strategies may still add value in tax‑free accounts.
