Course 206: The Best Investments for Taxable Accounts
Very Low Turnover Stock Funds
In this course
1 Introduction
2 Very Low Turnover Stock Funds
3 Tax-Managed Mutual Funds
4 Municipal Bonds or Municipal-Bond Funds
5 Individual Stocks
6 Exchange-Traded Funds
7 Variable Annuities
8 Other Ideas for Tax Relief

Financial pros argue that low-turnover funds (or funds that don't trade very often) are generally more tax efficient than high-turnover funds. That's somewhat of a myth. Morningstar has found that there's no one-to-one relationship between a fund's turnover rate and its tax efficiency. In fact, a fund with a 200% turnover rate can be just as tax efficient as a fund with a 50% turnover rate.

However, we have found that funds with exceptionally low turnover rates--below 20%--do tend to be tax efficient. Large-company index funds are tax friendly, for example, because they usually carry single-digit turnover ratios.

We've created a list of low-turnover U.S. stock funds using Morningstar.com's Fund Screener. To create the list, enter the following:

  • Under "Select Group," choose Domestic Stock.
  • Under "Turnover less than or equal to," choose 25%.
  • Click "Show Results" for the list.
  • On Results Page, choose "Portfolio"in the View drop-down box.
  • Click on "Turnover %" to rank funds on the list from lowest turnover to highest turnover.

You can manipulate any of the inputs, if you'd like, narrowing your search to funds in a particular Morningstar Category, or funds that earn a particular star rating, etc.

Next: Tax-Managed Mutual Funds >>


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