Is anything as painful as a bad mutual fund that compounds its mediocrity by paying out large capital gains distributions?

Vanguard released its final estimates for the capital gains it expects its funds to pay this month, and one of the biggest is coming from one of Vanguard’s worst ideas—Diversified Equity (VDEQX). Vanguard estimates the fund will pay out more than 10% of its assets as a capital gain to those who own shares in the fund on its December 27 record date. Only one fund, Windsor (VWNDX), a component of Diversified Equity’s mish-mosh of a portfolio, will pay out more—11.4%.

The difference, of course, is that while Diversified Equity lost 17.6% of its shareholders’ money through the end of November, Windsor actually gained 0.7%. It hardly seems like a fair fight.

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