The Tax-Saving Power of ETFs: Potentially Boost Returns?
Discover how exchange-traded funds (ETFs) can be a tax-efficient investment option that can help you save on taxes and potentially boost your investment returns.
Exchange-traded funds (ETFs) have catapulted in growth and popularity in recent years, and for good reason. ETFs offer a number of benefits, including low costs, flexibility, and diversification. However, one of the most compelling reasons to invest in ETFs is their potential tax efficiency.
When it comes to taxes, ETFs tend to have a number of advantages over other investment vehicles such as mutual funds or separately managed accounts (SMAs). With ETFs expanding their roots from equity-based funds to include many other asset classes, there are a lot of attractive options that may not be available in other investment vehicles – namely greater tax savings.
Top 4 Ways ETFs offer Tax Savings
- ETFs can be more tax-efficient than individual stocks. Because ETFs hold a diversified portfolio of stocks, they can smooth out volatility and reduce the likelihood of generating taxable capital gains. This can be especially beneficial for advisers who are looking to minimize taxes for their clients.
- ETFs offer a number of tax-saving strategies. Some advisers use ETFs to harvest losses, while others use ETFs to invest in tax-advantaged accounts, such as 401Ks and IRAs, which can further reduce taxes.
- ETFs can provide tax advantages in the form of in-kind transfers, which is the delivery or receipt of securities to create or redeem the ETF shares. Since trades are not occurring within the fund, there are no capital gains realized within the fund.
- The creation/redemption process is another way ETFs offer tax savings. Authorized Participants (APs) are the only institutions that are allowed to create or redeem ETF shares. ETC’s portfolio managers engage with APs to facilitate creation-redemption basket workflow.
Overall, word is spreading among the financial industry about the tax-saving power of ETFs. Tax savings is important to RIAs, especially as it relates to the client experience. Greater control and tax efficiency create the potential to keep more money invested in the market and receive greater capital appreciation over time.
If you're looking to maximize your returns and minimize your taxes, consider adding ETFs to your investment portfolio. Contact ETC to learn more.
Related Content:
Maximize Your Savings: How ETFs Help Reduce Taxes |
Tax Advantages of the ETF Structure over SMAs & Mutual Funds |
Death and Taxes: ETFs May Be Able to Help with One |
| Explore how to potentially reduce your tax bill by using ETFs in your investment strategy to minimize capital gains tax and dividend income tax. | ETFs have a significant advantage over other investment structures when it comes to tax efficiency. See how efficiency correlates to the client experience. | Converting your SMAs or mutual funds to an ETF can help facilitate a greater potential tax efficiency to help reach your investment goals. |
| Read More ⟶ | Read More ⟶ | Read More ⟶ |
