Bill-

"Name me one substantive difference between CGs and dividends in a mutual fund."
That wasn't my argument. The only difference I see is realizing CGs causes additional transaction costs, but I doubt that is a substantial factor in total return.

"Managers of balanced funds, which is what we are talking about, do not need to sell stocks for redemptions.  They sell stocks when they feel that have reached the goal they set for them when bought or when they realize that the goal has changed." What proof is there of that? Look at the past years performance of Wellesley (VWINX) versus Target Retirement Income Fund (VTINX). VWINX has realized capital gains while VTINX has realized capital losses. VTINX's total return is 4.88% higher than VWINX. Realizing CGs hasn't helped VWINX much. That total return situation is reversed when comparing Wellington to a dumb benchmark.

-dale