Are ETFs more efficient than index funds?
Posted: Sun Jul 07, 2019 8:48 pm
I currently own the Vanguard High Growth Index Fund (Wholesale).
But I was reading on a separate forum that this might be less tax efficient than owning a similar/equivalent Vanguard ETF.
The reason is – if I own an index fund ETF, then as it grows over the long-term, I don't get taxed on that growth, because the dividends aren't paid to me directly, but are merely reflected in the price of the ETF.
Whereas if I own exactly the same index fund directly, then every time dividends are distributed, that distribution triggers a tax event and I have to pay tax on it.
Here's an article that was linked to on the other forum, explaining this:
https://www.bloomberg.com/opinion/artic ... ying-taxes
Is this true? Does anyone else agree?
If so, it looks like I'd be better off switching to the equivalent Vanguard ETF as soon as possible (through a cheap brokerage, in Australia we have SelfWealth, CMC), so I can pay less taxes and make better returns over the long term.
Thoughts?
But I was reading on a separate forum that this might be less tax efficient than owning a similar/equivalent Vanguard ETF.
The reason is – if I own an index fund ETF, then as it grows over the long-term, I don't get taxed on that growth, because the dividends aren't paid to me directly, but are merely reflected in the price of the ETF.
Whereas if I own exactly the same index fund directly, then every time dividends are distributed, that distribution triggers a tax event and I have to pay tax on it.
Here's an article that was linked to on the other forum, explaining this:
https://www.bloomberg.com/opinion/artic ... ying-taxes
Is this true? Does anyone else agree?
If so, it looks like I'd be better off switching to the equivalent Vanguard ETF as soon as possible (through a cheap brokerage, in Australia we have SelfWealth, CMC), so I can pay less taxes and make better returns over the long term.
Thoughts?