5 ETF Investing Mistakes You Must Avoid

Assuming all ETFs are Tax Efficient

ETFs are in general tax efficient but that doesn’t apply to all ETFs. Bond ETFs often require frequent rebalancing to maintain their target duration or maturity. Thus, bond ETFs have to pay out capital gains at times but usually the capital gains are minimal.

Precious Metals ETFs like SPDR Gold Shares (GLD - Free Report) are treated same as holding the bullion itself. IRS treats precious metals as “collectible”, resulting in high tax rates for long-term capital gains. (Read: Forget Gold, Palladium ETF is Shining the Brightest)

MLP ETFs like Alerian MLP ETF (AMLP)  that have more than 25% of their assets invested in MLPs, are treated as C corporations for tax purposes. Further, assets are required to be marked to market and a deferred tax liability for unrealized gains needs to be recorded, resulting in large tracking errors.

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Chee Hin Teh 3 years ago Member's comment