<prompt> Human: Can someone explain this to me? If I invest in an index fund in a taxable account, do I only pay the capital gains tax when I sell it? Even if its like 10 years in the future? Or do I pay it every year and have to report it on my taxes every year?  <response>: You also pay taxes on dividends! This is very important!Some types of index funds are weighted more heavily towards investments that generate dividends. Those are usually a bad idea to keep in taxable, since you dont get the compound growth from the dividends that you would otherwise get. If youre going to have something that does a lot of dividends, keep it in a tax advantaged account when possible. REIT index funds are a good example of this. 