Portfolio Turnover, What It Is and Why It Matters

I learned a harsh lesson about portfolio turnover during a recession. I was forced to pay capital gains taxes on distributions of a long-term mutual fund holding, even though I didn’t sell any fund shares and even though the fund value had dropped more than 20% that year.

This experience taught me about portfolio turnover and related expenses, including taxes (along with the generally wise and tax-efficient approach of purchasing mutual funds for tax-advantaged accounts, not taxable ones). Since then, I have paid more attention to this notion, not in fear of turnover but recognition of its potential costs and benefits.

So, what is portfolio turnover and why does turnover matter?

Index Funds, Defined

You may have read that the best way to get started in investing is to buy index funds. But if you’re new to investing, you may wonder why? I’ll explain why some people think index funds are special and how to invest in them if you think so too.

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