Tax season is upon us, which is why, if you have any friends who are accountants, you probably haven’t heard from them for the past six weeks or so. Taxes impact your investment returns, so—as I like to do every year—I’m going to give you the inside scoop on the after-tax returns and tax efficiency of Vanguard’s funds and ETFs. And I’ll blow a myth or two away at the same time.

Before we dive into the numbers, I want to address a common misconception about the ability to measure the performance of your holdings using the cost basis reported on your monthly or annual statements.

I often hear comments like the one below from subscribers:

My bond fund is down at least 5% in the last three years, and according to my math, looking at cost basis, it is off far more than that. 

I’m sorry, but you can’t use the cost basis this way.

You’re forgiven if you’ve made this mistake. It’s incredibly common. You’d think that comparing a holding’s current value to your statement's “cost basis” would tell you your return. If I were new to the game (or even an experienced player), that would sound logical—it says “cost basis,” after all!

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