I think the most important point in this context is that the tax implications of a 0.5% long term cap gain distribution are subtle, and in any case, not as simple as a 0.5% qualified dividend distribution. Treating the two as if they were equivalent would be a weakness of any magic formula that attempts to reduce "tax drag" to a single number, especially if that magic formula is intended to be customized with inputs from an individual's tax situation.Nate79 wrote: ↑Fri Aug 10, 2018 1:05 pmActual tax drag is an individual situation specific detail. I disagree that gifting shares to charity or to heirs is what is on people's mind the most when thinking about tax drag of a mutual fund in a taxable account vs a retirement account. People are welcome to calculate the actual tax drag for their specific circumstances. I made the calculation for the most common.triceratop wrote: ↑Fri Aug 10, 2018 12:50 pm(emphasis mine)Nate79 wrote: ↑Fri Aug 10, 2018 11:53 amI made a quick calculation for the tax drag in a taxable account for FSTVX using the recent last couple of years capital gains distributions as an example. Note that historically this fund hasn't distributed that much but last couple of years it distributed about 0.5%. Tax drag is only the drag on the loss in growth on the taxes paid assuming tax rate paid now is same as when sold because the basis is increasing (as capital gains are reinvested increasing cost basis). I calculate the tax drag to be in the range of 0.02-0.03% per year though historically it would be zero except in the last couple of years.FIBoston wrote: ↑Fri Aug 10, 2018 11:28 amDon't the relative tax inefficiencies of Fidelity's funds (at least FSTVX) when compared to their most comparable Vanguard funds end up cancelling out the lower fees? I don't have total understanding of this but I thought that was the information I had seen. I could be wrong.
Not if you plan to gift your shares to heirs or charity. It's also not how tax drag is generally understood.
In the case where there are no capital gains tax rate when the security are sold (or just looking at final account value) the tax drag for this fund would be about 0.075% per year (though again this is based on the last couple of years of distributions, historically the numbers were less).
I haven't paid capital gains tax since 2005 (before that I didn't have the good sense to avoid active funds in taxable that routinely distribute capital gains), and have since accumulated substantial carryover losses. As a result, even if I did start using index funds in taxable that occasionally spit out a 0.5% LTCG distribution, it would have zero tax implications until some point in the *distant* future, if and when I eventually run out of carryover losses.
(On the other hand, ST cap gain distributions are toxic. Not as bad as non-qualified dividends, but close.)