the difference between index and etf
If they are looking at an investment for a taxable account, will the ETF always be a better choice? Dickson: Not always, and to a certain extent, we need to, again, put this sort of in the context of what are the differences between ETFs and traditional index funds. Most ETFs are index-based portfolios. Traditional index funds historically have also been very tax-efficient in terms of providing low capital gains realizations relative to actively managed funds and so forth. So, a lot of the difference, if you will, between ETFs and index funds really isn't a difference. It's that they are both indexed portfolios and will tend to be fairly tax-efficient, all else equal, relative to more actively managed strategies.
When it comes to the tax efficiency of ETFs versus index funds, ETFs are king. Unlike index funds, ETFs rarely buy or sell stock for cash. When an investor wants to redeem his or her investment, that person simply sells shares of the ETF on the stock market. When an index fund investor wants to redeem his or her investment, the index fund has to sell stocks for cash to pay the investor for the shares.