Tax and Money Tip of the Week:
What Can You Tell Me About ETFs?
November 7, 2012 | No. 117

Exchange traded funds (ETFs) have become a very popular investment in the last few years. Here are a few things that you should know about them if you are considering investing in ETFs –
 
      §  An ETF is a type of investment (like a mutual fund) that bases its investment mix on an index.
      §  Unlike a mutual fund, ETFs are traded on an exchange, so they can be bought and sold throughout the day (like a stock). Mutual funds can only be bought or sold once a day, generally at the market close.
      §  Many ETFs have lower expense ratios than mutual funds since ETFs are based on index investing.
      §  The variety of ETFs available allows you to focus an investment into a particular industry, commodity or country.
      §  ETFs are generally more tax-efficient (i.e., less taxable capital gains) than mutual funds.
      §  Check the track records of any ETFs you are considering.
             o  If total assets are less than $20 million, the sponsor may decide to close it.
            o  If trading is less than $500,000 per day, the bid/ask spread is likely to be wider. Generally, the more narrow this spread, the better.
 
Is an ETF the proper investment for you? Give us a call to discuss.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.