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Sad Uncle Sam


Step 7: Silent Partners

Figure 7-2

The same amount invested in the S&P 500 Index Fund would have grown to a much larger post-tax sum of $159,000. Figure 7-3 further reveals the contrast between the posttax returns of both Vanguard index funds and their respective Morningstar categories. From July 1999 through June 2014, a $100,000 investment in the Vanguard 500 Index Fund lost only $10,627 to taxes, while the Morningstar Large Blend category lost $23,994. Looking at another index at the bottom of the chart, the Vanguard Total International Index Fund lost $19,454 to taxes, while the Morningstar Foreign Large Blend category lost $28,680. It is important to note that the annualized returns for the Morningstar categories are upwardly biased due to the impact of survivorship bias. Such contrasts in taxes reveal why index funds investing makes for one very sad Uncle Sam, as seen in the painting.

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