ericd67 wrote:I'm not too concerned about the underlying transactions that take place such as in-kind exchanges etc, I just want to know how it affects ME. I assume I will pay a capital gains tax on $2 since I would be actually redeeming the share...so how is it more efficient?
.sort of understand the basic concept of the ETF and in-kind exchanges which can offset capital gains, but my question is more basic: If I buy a share of a hypothetical ETF today at $60 and sell it tomorrow for $62, what happens? Does it matter if it got to $62 from dividends or from market appreciation? I'm not too concerned about the underlying transactions that take place such as in-kind exchanges etc, I just want to know how it affects ME
Khanmots wrote:It's more tax efficient because of what happens when people buy and sell the share.
For a naively managed mutual fund... when someone buy a share they go out and buy a tiny bit of everything. When you sell the share, they sell off a little bit of everything. This creates capital gains within the mutual fund itself that get distributed... and you thusly get taxed on.
With an ETF when someone buys or sells a share they're buying/selling an existing share directly with someone else. So there's no underlying buying/selling of assets going on to generate taxable capital gains distributions.
RandyAdams1978 wrote:I was wondering myself about ETF's. From what I see at morningstar.com, some Vanguard ETF's are not even as tax efficient as their mutual fund counterparts.
Go to the above link and then click on the 'Compare' tab. Type in the Vanguard Total Market ETF (VTI). Click 'Add'. Then look at the tax cost ratio comparison. The lower the number here, the better. The ETF is LESS tax efficient than the mutual fund.
There are at least several Vanguard ETF's like this.
archbish99 wrote:Which points out that one key reason to use ETFs is if you don't have the $10k required to get into Admiral shares.
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