Market Data · Last updated: October 25, 2026

TaxManagedPortfolio.com Market Data

Taxes take more from a taxable portfolio than most investors' fund fees do. The research argument for managing them is measured in percentage points a year, not basis points.

Morningstar's work on the tax cost of investing gives the starting point. Its research found that the average equity mutual fund lost 1.48% of returns annually to taxes over the ten years ending in late 2020. That is the drag a tax-managed approach is trying to shrink: dividends, interest, and capital gain distributions, taxed year after year, compounding against the investor in the same way returns compound for them.

Direct indexing is where the largest published estimates sit. Summaries of Morningstar research put the annual value of tax management through direct indexing at roughly 1.0 to 2.0 percentage points a year for taxable investors, while another summary of the same research tradition puts the range at 0.75% to 1.00% and above for high-bracket investors. The spread is honest: the benefit depends on the investor's bracket, market volatility, and whether harvested losses have gains to offset.

The tax code sets the mechanics, and one number has not moved in decades. A taxpayer whose capital losses exceed gains can deduct up to $3,000 of the excess against ordinary income each year — $1,500 if married filing separately — with the remainder carried forward indefinitely. The $3,000 cap has been unchanged since 1978 and is not indexed for inflation, which is why a large loss can take years to work through without offsetting gains.

Key figures

Reading the numbers

Backtested tax alpha is not a promise. Morningstar's own backtest assumes unlimited capital gain offsets and no liquidation plans in its base case; an investor who liquidates, or who has no gains to offset, will see a smaller benefit, and the harvested losses eventually reduce cost basis, which can raise a future tax bill. The honest way to read a 1% estimate is as a modeled outcome under stated assumptions, not a rate of return.

The two Morningstar-derived ranges on this page — 1.0 to 2.0 points and 0.75% to 1.00% and above — come from different summaries of related research with different assumptions about brackets and volatility. Both are shown so the reader sees the uncertainty instead of a single polished number.

Methodology

Included: Morningstar tax-drag and direct-indexing research as published and as summarized in public advisor publications, a published tax-drag range for balanced portfolios, and IRS capital-loss rules as summarized from the Internal Revenue Code and IRS Topic No. 409. Excluded: tax-managed fund AUM totals (no public aggregate was verifiable in this session), fund-specific after-tax return tables, and any figure behind a paywall or login.

Sources

• Vineyard Wealth Group — Morningstar 1.48% annual tax loss; Greenspring 0.5%–2.0% drag range
• Donohue Wealth — Morningstar direct-indexing value roughly 1.0–2.0 points per year
• Coyyn — Morningstar direct-indexing tax alpha 0.75%–1.00%+
• Morningstar white paper — base-case ~1% post-tax improvement; $143,370 (28%) terminal advantage
• LegalClarity — IRC sections 1211–1212; IRS Topic No. 409: $3,000 cap, indefinite carryforward, unchanged since 1978

Changelog

• October 2026: Initial edition — tax-drag and tax-alpha estimates, Morningstar backtest results, and IRS limits and rules established; trend indicators added to every figure (prior-period figures shown where the same source publishes them; all other figures labeled Baseline (October 2026)).