Business I finance
Very Versatile
The ins and outs of ETFs.
Q. Please explain Exchange Traded Funds.
A. Exchange-Traded Funds, or ETFs, are aged index mutual funds, slightly more
index funds that trade just like stocks on
efficient than standard mutual funds
major stock exchanges. There are ETFs
and significantly more efficient that
for large U.S. companies, small ones, real actively managed mutual funds.
estate investment trusts, international
Traditional mutual funds accumulate
stocks, bonds and even
unrealized capital gains liabili-
gold.
ties for stocks that have risen in
Pick an asset class that
value. Upon sale of these stocks
is publicly available and
the fund calculates and peri-
there is a good bet that it is
odically distributes the capital
represented by an ETE
gains to its investors in propor-
ETFs differ funda-
tion to their ownership.
mentally from traditional
Both types of funds have
mutual funds, which do
modest distributions, certainly
not trade midday.
in comparison to actively man-
Traditional mutual funds
aged mutual funds.
Norton Stern
take orders during Wall
ETFs are considered to be
Colum nist
Street trading hours,
created by trading equivalent
but the transactions actually occur at
certificates in what is called an in-kind
the close of the market. The price they
trade. This exchange of essentially iden-
receive is the sum of the closing day
tical items does not trigger capital gains,
prices of all the stocks contained in
according to the IRS.
the fund. Not so for ETFs, which trade
Traditional mutual funds must go
instantaneously all day long and allow
through the open market and exchange
an investor to lock in a price for the
cash for stock and vice versa, which trig-
underlying stocks immediately.
ger realization of capital gains.
ETFs are economical to buy and espe-
As always, there are exceptions.
cially to maintain over
the long run, making ETFs are economical to buy and
them attractive for the
typical buy-and-hold especially to maintain over the long
investor. Annual fees
run, making them attractive for the
are as low as .09 per-
cent of assets, which
typical buy-and-hold investor.
is very low compared
to the average mutual fund fees of 1.4
Occasionally, an ETF that is only a few
percent.
years old may throw off unusually high
ETFs are also quite tax-efficient.
distributions in a market downturn.
Because of the way they are created ant
As always, be sure to contact your tax
redeemed, they allow an investor to
adviser and investment professional
pay most of his capital gains upon final
before investing in ETFs or any other
sale of the ETE There is no way to avoid
type of investment. I
capital gains, but delaying it is valuable
because the amount that would have
Norton Stern is a registered principal with
been paid to taxes can continue to accu-
Franklin Financial Investments, Southfield.
mulate wealth.
(248) 262-8810. Investments are offered
Exactly how much an investor benefits through Wachovia Securities Financial net-
after-tax depends on his marginal tax
work, LLC. Material is distributed solely for
rate, the return of the investment and
information. It is not a solicitation of an offer
how long the investment is held.
to buy any security or instrument or to part-
Overall, ETFs are similar to tax man-
cipate in any trading strategy.
We put your Business First
Citizens First understands that in order to succeed,
your business requires banking products and services
that work to support your growth. Our new
Citizens First Remote Deposit allows you
to scan your customers' checks and send us an
electronic deposit—saving you time
and reducing the risk of check fraud.
Convenient, streamline, online and comprehensive,
Citizens First centralizes your personal and
business banking so you have more time
to take care of what matters most—your company.
Come in today and find out how Citizens First
Commercial Banking professionals can lead you
to innovative banking solutions.
Citizens First
COMMERCIAL BANKING
Call (248) 474-6400 or come in to any of
your local Oakland County Banking Centers.
1304450
14' w
38
October 11 • 2007
w.cfsbank.com
iN
•:EVE,EF,
FDIC
Don Cohen
Na'amat Luncheon
Na'amat-Greater Detroit Council, providing social services for
Israel, will hold its annual donor luncheon noon Thursday, Oct. 25,
at Adat Shalom Synagogue, Farmington Hills. Speaker Don Cohen,
Great Lakes regional director of B'nai B'rith, will discuss "Behind
the Headlines',' the latest information on Israel.
Ilene Delidow is event chair. There is a charge. Reservations by
Oct. 16 to Na'amat, (248) 967-4750.