Quote:
Originally Posted by donheff
I have almost everything in mutual funds instead of ETFs because that's where I started out and I don't trade very often. I don't understand why ETF distributions present less of a surprise than mutual funds. Don't they both just aggregate the underlying stock distributions?
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No. There is a structural difference where in a mutual fund other people selling causes you to have a declared capital gain. When other people sell their ETF shares it doesn't affect others.
https://www.investopedia.com/article...tual-funds.asp
"The ETF structure results in more tax efficiency, too. Investors in ETFs and mutual funds are taxed each year based on the gains and losses incurred within the portfolios. But ETFs engage in less internal trading, and less trading creates fewer taxable events (the creation and redemption mechanism of an ETF reduces the need for selling). So unless you invest through a 401(k) or other tax-favored vehicles, your mutual funds will distribute taxable gains to you, even if you simply held the shares. Meanwhile, with an all-ETF portfolio, the tax will generally be an issue only if and when you sell the shares. "