It took 55 months, but would you believe that April 2007 marked the month when Tax-Managed Capital Appreciation (VMCAX) finally recovered its bear market loss of 51.0%?

Vanguard would have you believe that indexing is supposed to be a great diversification move. But its performance speaks otherwise.

Designed to generate minimal dividend and capital gains distributions, the idea is that the fund will be particularly "tax efficient," allowing the investor to keep more of the fund's total return after taxes are factored in.

Vanguard has made good on the promise, paying out no capital gains and only tiny dividends since inception. But Vanguard already uses many of the "tax-reduction" techniques employed here with its existing family of index funds. And when there are no gains to speak of, all the tax-reducing tricks in the book don't add up to much.

So, after losing more than half of its shareholders' money, I'm sure VMCAX investors weren't too content to stick around to find out if the fund's tax benefits were really worth the wait.

Now I know why Vanguard doesn't mention the downside of tax-efficient indexing.