Quote:
Originally Posted by retiredguy123
Vanguard mutual funds and ETFs are both extremely inexpensive, not large loading. I prefer the mutual funds to the ETFs because of the tax efficiency that they offer. Most people who buy mutual funds are "buy and hold" investors, so they are not trading on a daily basis, like ETF investors. This provides a more predictable investment environment that stabilizes the tax liability.
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Actively-managed non-index mutual funds (e.g., a Health Care mutual fund) are often LESS tax efficient for individual investors than a matching ETF. (Unlike, say, a passive S&P 500 index mutual fund.)
Managers of actively-managed non-index _mutual funds_ generally trade in and out and fund investors can get big taxable capital gain distributions from the mutual fund especially in a rising market even when they are buy-and-hold fund investors. Capital gains from _manager_ trading of a mutual fund get passed along to fund investors even when an investor has not sold their fund holding.
This tax treatment generally differs from comparable ETFs as ETF investors see the capital gains when they (not the fund managers) sell.