Every investing textbook teaches Sharpe ratio. None of them adjust for taxes. For Korean investors paying 15.4% on dividends and 22% on capital gains over 2.5 billion won, the after-tax picture looks completely different.
I’ve spent a lot of time researching this topic, and here’s what I found.
Why Pre-Tax Returns Lie
A fund returning 10% with high dividend yield looks identical to a fund returning 10% with zero dividends. Pre-tax, same Sharpe ratio. After tax? The dividend-heavy fund loses 1.5% annually to withholding. Over 20 years, that compounds to a 26% difference in terminal wealth.
Related: evidence-based teaching guide
How to Calculate After-Tax Sharpe
After-Tax Sharpe = (After-Tax Return – Risk-Free Rate) / Volatility
- Korean dividends: Subtract 15.4% from dividend yield
- US dividends (for Korean investors): 15% US withholding + potential Korean tax on remainder
- Capital gains: Currently 0% under 2.5B won (2026). This makes growth stocks massively tax-advantaged for Korean investors.
Practical Implication
For Korean investors under the 2.5B threshold: growth ETFs (VOO, QQQ) crush high-dividend ETFs (SCHD, VYM) on an after-tax basis, even if pre-tax returns are similar.
Sound familiar?
Last updated: 2026-04-03
Your Next Steps
- Today: Pick one idea from this article and try it before bed tonight.
- This week: Track your results for 5 days — even a simple notes app works.
- Next 30 days: Review what worked, drop what didn’t, and build your personal system.
About the Author
Written by the Rational Growth editorial team. Our health and psychology content is informed by peer-reviewed research, clinical guidelines, and real-world experience. We follow strict editorial standards and cite primary sources throughout.
References
- Korean National Tax Service (2026). Investment income tax rates.
What is the key takeaway about after-tax sharpe ratio?
Evidence-based approaches consistently outperform conventional wisdom. Start with the data, not assumptions.
How should beginners approach after-tax sharpe ratio?
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