tag:blogger.com,1999:blog-26981669.post4445388629873725059..comments2024-03-23T10:55:30.196-05:00Comments on Cold Fusion Guy: Exchange Traded Fund definedJim Peethttp://www.blogger.com/profile/07649414726939918803noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-26981669.post-72456233790556525802013-02-20T17:07:57.121-06:002013-02-20T17:07:57.121-06:00Exchange traded funds are an excellent IdeaExchange traded funds are an excellent IdeaQUALITY STOCKS UNDER 5 DOLLARShttp://www.zipleaf.us/Companies/The-Manhattan-Calumet-Value-Stock-Hotlinenoreply@blogger.comtag:blogger.com,1999:blog-26981669.post-22093183577759650062012-11-15T18:20:55.590-06:002012-11-15T18:20:55.590-06:00Article that speaks to the tax efficiencies of ETF...Article that speaks to the tax efficiencies of ETFs: <a href="http://www.cnbc.com/id/49751084/" rel="nofollow">Not a Pretty Market Close—Here's Why</a>:<br /><br />There is already some normal, end-of-year movement of ETFs that is happening. But there's an factor this year: ETFs almost never distribute capital gains, and with anxiety about capital gains tax increases growing, that is a big plus.<br /><br />There are two types of capital gains: 1) capital gains from buying and selling in a portfolio, and 2) capital gains from selling your individual position in a stock, mutual fund, or ETF.<br /><br />Most ETFs never distribute capital gains from buying and selling in the portfolio because 1) most are not actively managed, so there is relatively little buying and selling within the funds, and 2) ETFs have a more tax efficient structure due to the way shares are created and redeemed.<br /><br />In an actively traded mutual fund, if I sell $10,000 of that fund back to the fund, the fund has to go and sell the underlying stocks in that fund, and that creates a taxable event for me.<br /><br />In an ETF, there is no taxable event from buying and selling the underlying portfolio. If I want to sell $10,000 of an ETF, I can do it by selling to my broker. It may be bought by another natural buyer, or by a market maker. The market maker will go to the ETF fund itself and delivers those shares, and the fund in return will give the underlying stocks back to the market maker. That does not trigger a capital gain.<br /><br />Come year end, the ETF and its shareholders will not owe any taxes due a distribution of capital gains. There will be a capital gain from selling my position, but I won't get a separate bill on capital gains distributions.<br /><br />Get it? It's a more efficient tax structure. That's why ETFs make more sense for many investors.<br /><br />Here's the data on equity ETFs, from Index Universe,<br /><br />1) Only 20 of 756 equity ETFs paid distributions—less than 3% of all equity ETFs, and again, the gains they did pay out were tiny.<br /><br />2) By comparison, 24 percent of equity mutual fund share classes made a capital gains distribution.<br /><br />I'm not expecting everyone to go out and sell their mutual funds to buy ETFs. That wouldn't make much sense.<br /><br />But I do think that a lot of new capital will continue to flow into ETFs.Jim Peethttps://www.blogger.com/profile/07649414726939918803noreply@blogger.com