Do ETFs or Mutual Funds Have a Greater Post-Tax Return?

Do ETFs or Mutual Funds Have a Greater Post-Tax Return?

March 09, 2023

Do ETFs or mutual funds have a greater post-tax return? Paul L. Moffat, President and Senior Financial Planner at Arista Wealth Management, explains in the newest episode of Arista Advice!

Full Transcript:

Hello, welcome to Arista Advice! Question of the week that's been submitted is: "Paul, do ETFs or mutual funds have a greater post-tax return?" Well, what does ETF stand for? We use a lot of acronyms in this industry - IRA, RBD, RMD. If there's not an acronym, it really doesn't fit inside our industry. But an ETF stands for an exchange traded fund. It is a basket that can be traded anytime the market is open. 

Many investors are aware these exchange traded funds or ETFs generally offer better after tax returns than mutual funds. But the question is, by how much? Well, let's look into it. Research shows that an ETF gives an extra 0.2 percentage point for small-cap US equities. As you'll see also on this chart, the international equities ETFs gave a differential of .33 over a mutual fund. Still not convinced? Let's go look at the US large cap. A ETF in the US large-cap gave a 16% differential. Oh, you're still not convinced? Let's look at growth. Growth gave a 0.22 differential. And still not convinced? Let's go look at value stocks as you'll see here. Value stocks gave a .20 differential.The research continues to show that ETFs are a better investment vehicle for the long-term, but don't just abandon all your mutual funds. You have to look at the tax implication of dumping a mutual fund to go jump into an ETF. So there's lots of things that need to be taken into consideration as you visit with your investment advisors. But remember, it's important to have a full discussion when making big changes, and remember to go to to get other videos, tools, tips, and resources to help you live a life of significance.