Year-End Tax Shock

This episode digs into the unwelcome December surprise of capital-gains distributions, especially from actively managed mutual funds. Don and Tom break down Morningstar’s latest list of high-distribution offenders, spotlighting the astonishing 83% capital-gains payout from the Royce Midcap Total Return Fund. They compare the tax drag, costs, turnover, and long-term underperformance of these funds against index funds and ETFs, and explain why tax-efficient investing matters far more than most people realize. Listener questions cover overly complex portfolios, Edward Jones stock positions, odd-lot tender offers, and whether large-cap blue-chip stocks remove the need for bonds. The episode closes with a reminder that detailed portfolio triage is best handled in one-on-one meetings. 0:04 Capital-gains season returns and why high fund returns can still hurt 0:29 Don & Tom on weather, wardrobe, and warming up in Florida 1:30 December capital-gains distributions and why they happen 2:07 Morningstar’s warning: active funds with big capital-gains payouts 3:06 Vanguard, T. Rowe Price, and American Funds distribution levels 4:09 The biggest offender: Royce Midcap Total Return Fund 5:41 Why 35 funds will distribute more than 10% of assets 5:52 The stunning number: Royce’s 83% capital-gains distribution 6:52 Why big outflows and poor performance drive big taxable events 7:21 Royce’s turnover, tiny size, high costs, and weak long-term returns 8:47 Why it’s critical to hold active funds only in tax-advantaged accounts 10:07 ETFs vs mutual funds: tax efficiency and turnover differences 11:42 Comparing Royce to Avantis AVGE on fees, turnover, and performance 12:16 How AVGE tracks its index vs Royce’s massive underperformance 13:33 When selling an active fund before a distribution may or may not help 14:05 Listener question: overly detailed allocation request — why it needs a meeting 16:29 Why some questions require one-on-one analysis 18:20 Why Appella’s free meetings exist (and what they’re not) 20:35 Odd-lot tender offers explained 22:14 Listener: selling Edward Jones stock holdings and leaving EJ 23:42 Why small, young investors should clean up taxable accounts early 24:24 The long decline of commission-based brokerage 25:26 Bothell check-in: blue-chip stocks vs bonds 27:18 Historical returns: 98 years of total market vs small-cap value 28:49 Why bonds exist in a portfolio despite low recent returns 29:30 Closing thoughts on discipline, diversification, and realism Learn more about your ad choices. Visit megaphone.fm/adchoices