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Is There a Best Time to Put Your Money into an ETF?
ETFs (Exchange Traded Funds) have become an increasingly popular means of investing in stocks. Today we consider this. Is there a best time to put your money into an ETF? But first, here is a little refresher about ETFs. Many investors have switched from mutual funds to ETFs. Investopedia explains the difference between exchange-traded funds and mutual funds.
ETFs trade throughout the trading day, like stocks, while mutual funds trade only at the end of the day at the net asset value (NAV) price. Most ETFs track a particular index and as a result have lower operating expenses than actively-invested mutual funds. Thus, ETFs may improve your rate of return on investments. In addition, ETFs have no investment minimums or sales loads, unlike traditional mutual funds, which often have both.
And there are tax benefits to ETFs versus mutual funds.
ETFs create and redeem shares with in-kind transactions that are not considered sales. Thus, taxable events are not triggered. Redemptions create tax events in mutual funds, but they do not create tax events in ETFs. When a forced sale of stock occurs, mutual funds record and distribute higher levels of capital gains than ETFs.
In addition, ETFs have greater tax efficiency due to a structure that allows them to substantially decrease or avoid capital gains distributions altogether. This difference can greatly affect the overall rate of return, even if an ETF and mutual fund both track the identical index.
Passive investors have found that, all too often, managed funds like mutual funds do not do as well as the overall market. Because ETFs are typically index funds, they track the market. So, ETFs may well be an ideal way to invest. But, is there a best time to put your money into an ETF? It turns out that there is!
Is There a Best Time to Put Your Money into an ETF: When Outflows Are High
Market Watch reports on a study by Deutsche Bank in an article about why it pays to be a stock market contrarian.