While you’re probably reading this because you have a good handle on your investments, it may surprise you that I like Exchange Traded Funds (ETFs), or a group of securities that trades and acts like a stock – you buy shares, hold them just like you would hold shares of company stock, and can sell them just as easily. You can purchase index ETFs, that follow an index by owning all of the stocks in the index, focused ETFs, such as stocks focused on tech, dividends, utilities, commodity and real estate ETFs, etc.
They’re also tax efficient, in that dividends are taxed at the 15% qualified rate so long as you’ve held the stock ETF for 60 days (ETFs in other types of assets may be taxed differently). And, you can control your capital gains by deciding when/if to sell, as opposed to a mutual fund which routinely passes on long-term, short-term and other capital gains and dividends, usually at year-end, just in time for you to figure out how to pay the estimated taxes on such by January 15th.
So, what “twist” can I suggest? Just buy and hold, right? Yes, that can work, but I would like to point out that, with many trading platforms having no-fees for trading now, you can easily review the positions that an ETF holds, and make purchases of some of individual stocks within the ETF you are considering.
For example, DVY (iShares Select Dividend ETF) is an ETF with a focus on dividend-paying companies. It has a higher annual fee than passive index funds (0.39% annually, as opposed to about 0.10%-0.20% annually for an index ETF). You can consider purchasing select stocks within the ETF. This will allow you to diversify, and will also give you more control over your investment, as you can sell losers to offset other capital gains, buy more of the winning stocks, reinvest dividends in some companies but not others, etc. Instead of buying the ETF, use the ETF’s holdings as a guide to create a mini-portfolio within your larger portfolio that mimics the ETF. And when it comes to holding these stocks long-term, you will avoid the annual fee the ETF charges as well. An ETF’s individual holdings are easily found in a Google search.
This idea makes even more sense with actively-managed ETFs as they have higher annual fees than passive, index ETFs. Good luck with all of your investing, and remember, wealth is just DECADES away.
DECADES to Wealth 