Fund Spy

Another Lesson on Why Taxable Money in Active Stocks Is a Bad Idea

Jeffrey Ptak, CFA

Key Takeaways

  • In general, investing taxable money in active stock funds is a bad idea.
  • This was vividly underscored last week by  Harbor International Fund’s (HAINX) announcement that it expects to make a huge capital gains distribution equivalent to roughly 38% of the fund’s net asset value.
  • There are lessons to be learned from the Harbor fund’s example, such as giving a wide berth to active stock funds that are sitting on large unrealized gains while experiencing heavy investor outflows.

Investing Taxable Money in Active Equity Funds: Bad Idea
We’ve written previously about investing taxable money in active stock funds. To briefly summarize our research findings: Bad idea. Most active stock funds won’t beat a comparable index fund or exchange-traded fund after taxes. Why? Competition (that is, it's tough to beat the index even before fees), costs, and taxes.

Jeffrey Ptak, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.