ETF Tax Advantage
ETF Tax Advantage
I am looking at 10-Year Total Return % for the following industry's star financial products and do not find a significant difference that illustrates the much talked about "tax-efficiency advantage" aspect of owing ETFs like IVV and VOO over a TIF like FXAIX.
Ticker Symbol 10-Year Total Return %
FXAIX 16.15%
IVV 16.12%
VOO 16.13%
Sources:
https://www.morningstar.com/funds/xnas/ ... erformance
https://www.morningstar.com/etfs/arcx/ivv/performance
https://www.morningstar.com/etfs/arcx/voo/performance
Your thoughts and comments that shed light on this are welcome.
Ticker Symbol 10-Year Total Return %
FXAIX 16.15%
IVV 16.12%
VOO 16.13%
Sources:
https://www.morningstar.com/funds/xnas/ ... erformance
https://www.morningstar.com/etfs/arcx/ivv/performance
https://www.morningstar.com/etfs/arcx/voo/performance
Your thoughts and comments that shed light on this are welcome.
- anon_investor
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Re: ETF Tax Advantage
Those are "total return" numbers, not "after-tax" return numbers.firmsoil wrote: ↑Wed Dec 01, 2021 8:28 pm I am looking at 10-Year Total Return % for the following industry's star financial products and do not find a significant difference that illustrates the much talked about "tax-efficiency advantage" aspect of owing ETFs like IVV and VOO over a TIF like FXAIX.
Ticker Symbol 10-Year Total Return %
FXAIX 16.15%
IVV 16.12%
VOO 16.13%
Sources:
https://www.morningstar.com/funds/xnas/ ... erformance
https://www.morningstar.com/etfs/arcx/ivv/performance
https://www.morningstar.com/etfs/arcx/voo/performance
Your thoughts and comments that shed light on this are welcome.
Re: ETF Tax Advantage
Morningstar Total Return is pre-tax. It does not factor in taxes in any manner.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
- anon_investor
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Re: ETF Tax Advantage
For a rough estimate you can look on Fidelity:firmsoil wrote: ↑Wed Dec 01, 2021 10:04 pm Thank much for your responses.
Is there any open-source tool/calculator that reports typical adjusted returns that account for the (typically) annual dividend distributions that TIFs report even if they are reinvested in additional shares on which the TIF shareholders are made to owe taxes...
VOO:
https://screener.fidelity.com/ftgw/etf/ ... ymbols=VOO
IVV:
https://screener.fidelity.com/ftgw/etf/ ... ymbols=IVV
FXAIX:
https://fundresearch.fidelity.com/mutua ... e=o-NavBar
Re: ETF Tax Advantage
Thanks again for sharing the links. Looks like "Returns after taxes on distributions" (as shown below) seem to be the closest to incorporating the tax efficiency or dodge (depending on your point of view).
Symbol 10 Yr Market Return
ivv 15.95%
fxaix 16.02%
voo 16.07%
Overall the differences here seem not to be substantially large with IVV ETF return slightly lower than FXAIX TIF.
https://screener.fidelity.com/ftgw/etf/ ... ymbols=IVV
https://fundresearch.fidelity.com/mutua ... e=o-NavBar
https://investor.vanguard.com/etf/profi ... rmance/voo
Symbol 10 Yr Market Return
ivv 15.95%
fxaix 16.02%
voo 16.07%
Overall the differences here seem not to be substantially large with IVV ETF return slightly lower than FXAIX TIF.
https://screener.fidelity.com/ftgw/etf/ ... ymbols=IVV
https://fundresearch.fidelity.com/mutua ... e=o-NavBar
https://investor.vanguard.com/etf/profi ... rmance/voo
- anon_investor
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Re: ETF Tax Advantage
I wonder if IVV's slightly lower performance can be attributed to its higher expense ratios over the years. Only recently did iShares lower it to match VOO.firmsoil wrote: ↑Wed Dec 01, 2021 10:44 pm Thanks again for sharing the links. Looks like "Returns after taxes on distributions" (as shown below) seem to be the closest to incorporating the tax efficiency or dodge (depending on your point of view).
Symbol 10 Yr Market Return
ivv 15.95%
fxaix 16.02%
voo 16.07%
Overall the differences here seem not to be substantially large with IVV ETF return slightly lower than FXAIX TIF.
https://screener.fidelity.com/ftgw/etf/ ... ymbols=IVV
https://fundresearch.fidelity.com/mutua ... e=o-NavBar
https://investor.vanguard.com/etf/profi ... rmance/voo
Re: ETF Tax Advantage
Unnecessary capital gains distributions have a greater effect than just the raw taxes on those distributions. They increase your AGI which can affect things like ACA subsidy, and many other tax credits
Especially because you have an avenue to avoid them. ETFs
Especially because you have an avenue to avoid them. ETFs
Re: ETF Tax Advantage
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Re: ETF Tax Advantage
https://www.morningstar.com/articles/83 ... ratio-tool seems like the tool for researching this aspect the TIFs tax efficiency.
Re: ETF Tax Advantage
I suppose if one was in the highest marginal income tax bracket and paid no state income taxes and didn't know anything about the Foreign Tax Credit, then that tool might work. There are better tools if you can find the input data. For instance the spreadsheet linked in this thread: viewtopic.php?t=342995firmsoil wrote: ↑Sat Dec 04, 2021 9:38 am https://www.morningstar.com/articles/83 ... ratio-tool seems like the tool for researching the TIFs tax efficiency.
That way, one can plug in their own personal tax situation.
The reality is that passively-managed, low-expense ratio index funds are quite tax-efficient whether they are mutual funds or ETFs. If you like to hoe around in the weeds that are less than a eighth of an inch high, then the spreadsheet is for you. Otherwise, ETFs vs mutual funds of the same or similar passive-managed index are virtually identical in terms of tax efficiency.
But let us know what you figure out please.
Re: ETF Tax Advantage
And it's better to get the data from the source. Morningstar doesn't always know about qualified dividends, so its tax cost ratios are sometimes too high. Vanguard's tax costs on Vanguard funds are more reliable.livesoft wrote: ↑Sat Dec 04, 2021 9:56 amI suppose if one was in the highest marginal income tax bracket and paid no state income taxes and didn't know anything about the Foreign Tax Credit, then that tool might work. There are better tools if you can find the input data.firmsoil wrote: ↑Sat Dec 04, 2021 9:38 am https://www.morningstar.com/articles/83 ... ratio-tool seems like the tool for researching the TIFs tax efficiency.
ETFs still have an advantage in higher-turnover asset classes. For example, Fidelity Extended Market Index regularly distributes significant capital gains (6% of NAV in April 2021); Vanguard Extended Market Index hasn't distributed any since it added an ETF class.For instance the spreadsheet linked in this thread: viewtopic.php?t=342995
That way, one can plug in their own personal tax situation.
The reality is that passively-managed, low-expense ratio index funds are quite tax-efficient whether they are mutual funds or ETFs. If you like to hoe around in the weeds that are less than a eighth of an inch high, then the spreadsheet is for you. Otherwise, ETFs vs mutual funds of the same or similar passive-managed index are virtually identical in terms of tax efficiency.
Re: ETF Tax Advantage
A well researched article that sheds light in this context (within the vanguard universe) is https://seekingalpha.com/article/446859 ... -long-term.
- arcticpineapplecorp.
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Re: ETF Tax Advantage
when the patent on vanguard mutual funds expire in 2023, will the fund start distribute gains that are now excluded? if so, would etfs be more advantageous than the corresponding mutual fund after 2023?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
- anon_investor
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Re: ETF Tax Advantage
It shouldn't. The patent expiration just means other companies can start using the same strategy.arcticpineapplecorp. wrote: ↑Sat Dec 11, 2021 9:29 am when the patent on vanguard mutual funds expire in 2023, will the fund start distribute gains that are now excluded? if so, would etfs be more advantageous than the corresponding mutual fund after 2023?
- arcticpineapplecorp.
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Re: ETF Tax Advantage
ah, that makes sense. good to know. thanks.anon_investor wrote: ↑Sat Dec 11, 2021 9:46 amIt shouldn't. The patent expiration just means other companies can start using the same strategy.arcticpineapplecorp. wrote: ↑Sat Dec 11, 2021 9:29 am when the patent on vanguard mutual funds expire in 2023, will the fund start distribute gains that are now excluded? if so, would etfs be more advantageous than the corresponding mutual fund after 2023?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
- anon_investor
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Re: ETF Tax Advantage
To he honest, I doubt other companies will bother. The recent trend has been for companies to wholesale convert their mutual funds to ETFs. Having a dual share class probably only makes sense when you have very large funds like Vanguard. It is much cheaper to run an all ETF fund.arcticpineapplecorp. wrote: ↑Sat Dec 11, 2021 10:39 amah, that makes sense. good to know. thanks.anon_investor wrote: ↑Sat Dec 11, 2021 9:46 amIt shouldn't. The patent expiration just means other companies can start using the same strategy.arcticpineapplecorp. wrote: ↑Sat Dec 11, 2021 9:29 am when the patent on vanguard mutual funds expire in 2023, will the fund start distribute gains that are now excluded? if so, would etfs be more advantageous than the corresponding mutual fund after 2023?