American Expat? Should not buy Actively managed funds!

If you are an American expatriate, you would probably live oversea for sometimes now. You would probably also have invest a small amount of your money to a IRA, which you can only put up to $5000/year if you are under 50 years old, and $6000 if you are older than 50. But just by invest this little $5000 a year, that will just give you nuts when you're retired. That means your investment mostly would be put in banks or invest in taxables accounts.

So far we know Actively managed funds and Passively managed funds are taxable accounts.
But which of these should American expats invest?
Based on a study: http://www.nerdwallet.com/blog/investing/2013/active-mutual-fund-managers-beat-market-index/

That shows the Average Returns for active fund are likely higher than index fund by 0.12%. Wait, now, have a look at the Average Returns, which is telling active fund now gives you less than the amount index fund gives you. From the Average Returns before Fees and Average Returns without looking at the fees yet, you can conclude that active funds would have higher fees and higher taxes compare to index. It is also proved by this data. 

• There are 2 main ways that you could make money by invest your money in taxable accounts:
• Dividend - A share of profits received by a stockholder or by a policyholder in a mutual insurance society
• Capital gain (price appreciation) - An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price

And these money will be taxed as it is an income, roughly 2% from dividend, and roughly 8% from capital gain.

• For capital gain, it will be taxed in two ways:
• Short term - taxed at a higher rate
• Long term - taxed at a lower rate

Now, what is a active fund manager do to managed his fund? Yes, he keeps buying and selling stocks. If you invest in his fund, you would likely to have different stocks each year. By doing so, they will have to pay SHORT TERM tax - which is held within a year, taxed at a high rate. But the other way around with passive funds.

Reflect:

Article: Hello passive, goodbye active: fund investors make a switch
Link: http://www.ft.com/intl/cms/s/0/3aa2cd62-d4da-11e2-9302-00144feab7de.html#axzz2kRquihXV

This article shows that investors finally realize how the high fees and costly active funds are. The number of investors in passive is increasing recently.  In the past four years, assets held in passive investment funds have more than doubled, and the sector now accounts for $1.3tn of US investors’ assets – just under one-tenth of the country’s gross domestic product. People turned their backs on active fund and favor low-cost passive fund mainly because of the feeling of dissatisfaction. They realized that they usually have to pay for indifferent service by active managers as well