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Mutual Funds vs ETFs for taxable account investing
Posted on 3/13/24 at 4:55 pm
Posted on 3/13/24 at 4:55 pm
This is a spin off from another thread where somebody was asking about mutual funds. A commenter noted to use ETFs instead for a taxable account as Funds have a pass through for capital gains from turnover I believe. I never considered this as I’ve always been in tax deferred investments.
I know there is more flexibility for ETF’s but is this true for index investing as well? Are there any downsides to ETFs for this type of investing that could be long term? I’m looking at investing the cash above our emergency fund into a mix of large growth and large value and wanted to make sure I picked the right vehicle and minimized taxes. Could be for 1 year or 10 depending on when we need the money.
My mix is going to be 40%MM, 30% LC, 30% LV which works out pretty well in back testing (haven’t checked too see how much overlap) and keeps me with enough cash if needed.
TIA.
I know there is more flexibility for ETF’s but is this true for index investing as well? Are there any downsides to ETFs for this type of investing that could be long term? I’m looking at investing the cash above our emergency fund into a mix of large growth and large value and wanted to make sure I picked the right vehicle and minimized taxes. Could be for 1 year or 10 depending on when we need the money.
My mix is going to be 40%MM, 30% LC, 30% LV which works out pretty well in back testing (haven’t checked too see how much overlap) and keeps me with enough cash if needed.
TIA.
1
Posted on 3/13/24 at 5:36 pm to SquatchDawg
ETFs are better for the reason you and the previous commenter mention. Even better so now since the mutual funds will have a lot of embedded gains that will be passed onto the fund holders. My only comment would be to maybe use a percentage you have set for money market into a short term or ultra short term bond ETF. While the yield difference right now is minimal in a lower interest rate environment it could help out a little. Some of these would be MINT, JPST and NEAR.
Posted on 3/13/24 at 6:07 pm to TX_Tiger23
Be selective in the funds you choose and this is less of any issue.
I utilize index funds so that I can have everything automated. I can’t do that with ETFs.
I utilize index funds so that I can have everything automated. I can’t do that with ETFs.
Posted on 3/13/24 at 6:47 pm to lynxcat
How so? Wouldn’t an index etf hold the index similar to a fund?
This post was edited on 3/13/24 at 6:48 pm
Posted on 3/13/24 at 6:50 pm to TX_Tiger23
Thanks TX….i do like a portion of the MM being in a short term tres etf . My main goal for that money is to get the most return possible without a risk of losing value.
Posted on 3/13/24 at 8:12 pm to SquatchDawg
quote:
How so? Wouldn’t an index etf hold the index similar to a fund?
Yes but when a stock is replaced in the S&P 500, the index fund has to sell it. Kinda. It’s complicated, and there are ways around it that the big players avoid (Vanguard/BlackRock). Just know that even though it’s very rare from index mutual funds, their structure is more prone to CG distributions than an ETF’s structure.
It’s so rare in index mutual funds that’s it’s not really worth considering under current law.
Posted on 3/13/24 at 8:26 pm to SquatchDawg
quote:
How so? Wouldn’t an index etf hold the index similar to a fund?
I am most driven by automated investing hence bias to mutual funds. I don’t ever have to touch my taxable account.
$2500 comes in from checking and $2500 is automated to invest the next day. It’s hands free and I can’t do that with ETFs.
Posted on 3/13/24 at 11:12 pm to lynxcat
Gotcha. That makes sense. This would be more of a one time reallocation of existing cash…that I’m probably going to do manually anyway to dollar cost average and would need to reallocate if we had to draw from the cash for some expense.
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