If you can earn 10% and keep 6%, or earn 8% and keep 7.5%, which is actually better?

I’ve been following this JPM slide deck for years and they FINALLY added a slide on taxes.

It shows how much capital gains get triggered by different investment vehicles.

Two big takeaways:

• Active mutual funds don’t just struggle to beat the index before tax
• Your real hurdle rate is 1–2% higher because of tax drag from realized gains

That’s why plain vanilla index ETFs are so powerful:

• Low fees
• Low turnover
• Very little in forced capital gains distributions

If you’re in CA and your fund earns 10% before tax, but realizes 8% of the portfolio in gains, you can easily lose ~3% of that return to taxes and only be compounding at ~7%.

This is why everything I care about is after‑fee, after‑tax compounding, not just headline returns.

As powerful as passive index funds are, they’re not even where we stop.

The goal is to:

• Capture market return
• Add after‑tax alpha (better structures / smarter exposures)
• Stack on tax savings each year from tax-loss harvesting (capital & ordinary)

Most people think in terms of:

10% – 3% tax drag = 7% after tax.

I want my clients thinking in terms of:

10% + 1% alpha + 3% tax alpha = 14% after tax

That’s how you can turn a mediocre 10% pre‑tax / 7% after‑tax compounding path into something closer to a 14% after‑tax compounding path over the long run.

Not a promise, just math when you embrace active tax management instead of ignore it.

Tax alpha wins in the long run.

If your current plan starts and ends with “earn more before tax,” and no one is actively managing the tax side, you’re leaving a lot on the table.