NewBoglehead:Hi, I have been happy with having the bulk of my 401k funds in the Fidelity Balanced fund (FBALX) and am starting a taxable account, too. My initial inclination was to have FBALX as the core of my taxable account, until I started reading that this is not advisable because it's not tax efficient. I'd be grateful for details on this and, if so, other possible options either in the Fidelity famiy or outside. Many thanks!
If you are asking for details on why any fund is not tax efficient it is because dividend and capital gains have to be paid out to shareholders each year and these payouts decrease the NAV and are taxable events if the shares are held in taxable accounts even if you reinvest the dividends and capital gains. Some funds adjust their NAV daily, others adjust their NAV at payout.
High dividend payers and high turn-over funds are tax inefficient if you reinvest your dividends/cap gains. If you take the dividends as income, then it is not such an issue as it is if you reinvest them.
