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capital gains taxes

Tired of Capital Gains Taxes? ETFs are More Tax Efficient

November 20, 2013 by Thomas Mullooly

https://media.blubrry.com/invest/p/content.blubrry.com/invest/Mutual_Funds_ETFs_and_Captial_Gains_November_2013_Podcast.mp3

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Are you tired of paying capital gains taxes every year? If so, you are not alone. Most investors probably wouldn’t be upset to see them disappear altogether. This week on the Mullooly Asset Management podcast Tom and Brendan have a timely discussion about mutual funds, ETFs, and capital gains. For those looking to get away from capital gains taxes, ETFs are more tax efficient than mutual funds in most instances. This is also something that Tom and Brendan talk about in the podcast.

Every year from around mid-November until the year’s end, mutual funds distribute capital gains to fund holders. These investors have to report these gains and pay taxes on them. This obviously does not apply to you if you own mutual funds inside of a tax protected account like an IRA or another type of retirement account. It is important to research what you buy around this time of year though because you certainly would not want to invest in a mutual fund now only to be slapped with some big capital gains right away.
capital gains taxes
Tom and Brendan discuss an example of how mutual fund capital gains work for long term investors. They dissect year by year how the process would play out. It is crucial to understand how a mutual fund, or any investment for that matter, works before getting involved.

If investors are truly interested in finding an alternative to mutual funds because they don’t like capital gains taxes, then ETFs could be a great solution to look into. ETFs and mutual funds are similar in some ways, but quite different in others. ETFs are more tax efficient than mutual funds in almost all scenarios. This is because ETFs don’t have year end capital gain distributions. With an ETF, the gain is the difference between what you sell it for and what you bought it for. Very simple. When you buy an ETF, you buy the basket of stocks or bonds exactly how they are at that moment. The same goes for selling, and that is why ETFs are more tax efficient in most instances.

Tune into this week’s Mullooly Asset Management podcast to learn more about mutual funds, ETFs, and capital gains.

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Filed Under: Asset Management, Podcasts Tagged With: ETF's, mutual funds

About Thomas Mullooly

Thomas Mullooly is owner and founder of Mullooly Asset Management, Inc. In 2002 Tom opened Mullooly Asset Management, a fee-only investment advisory firm. As an investment advisor, and not a broker, Tom works strictly for his clients. With the help of point and figure charting, Tom builds a realistic game plan for clients.

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The information on this website and blog do not involve the rendering of personalized investment advice. A professional advisor should be consulted before implementing any of the options presented. None of the content contained in this website should be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

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