Brandy Auterson:
It’s now time for For Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much, Brandy.
Brandy Auterson:
So, as 2021 wraps up, what can you share that stands out to you in the money management world that maybe isn’t getting the attention it deserves in the mainstream media?
David Nelson:
Yes. Unfortunately, kind of a boring topic probably to many individuals, but the important one as far as if you’re investing, ETFs, exchanged traded funds. Not necessarily new. They’ve been around about 20 years, but pales in comparison. Mutual funds going back almost 100 years. ETFs, exchanged traded funds, have a few advantages as far as that mutual funds don’t have and subsequently, the amount of money that’s been flowing into it is just off the charts. The chart I brought along today is going to illustrate as far as month by month as far as net inflows going to ETFs. And, this net inflow, we’re looking at anywheres from $40 billion in a given month to $100 billion, amounting to about $880 billion of new flows going into ETFs.
David Nelson:
Now, much of that, unfortunately… If you’re in the mutual fund business, unfortunately a lot of that came at the detriment as far as of the mutual fund world. That money came out of mutual funds, much of that money, and it made its way into exchanged traded funds.
Brandy Auterson:
So, what is it about this type of structure that has drawn investors to it?
David Nelson:
So, I think that it’s primarily centers around two big items. The first one is they trade like stocks. So, for many people, this may not be that big of an issue because, again, they’re not actively trading day to day or hour to hour. But, for individuals that would like that flexibility to be able to enter the market when they want to, not at the end of the day… Mutual funds is always at the end of the day. No matter when you invested the money, it’s the close of that day as far as when that money’s going to go in.
David Nelson:
The other is tax efficiency. So, this one gets a little bit more complicated, but big picture, mutual funds as far as when the mutual fund manager buys and sell stuff as far as on your behalf in that mutual fund, all of those transactions either have a gain attached to it or they have a loss attached to it and at the end of the day, that all has to be accounted for at the end of the year. So, when you have a pretty decent year like we’ve had and last year was pretty decent as well, all of that has to flow to the investor. So, in other words, even though you didn’t necessarily take that money in the form of a distribution, you left it in there reinvested, you’re going to have to pay taxes on that money if it’s in non-IRA accounts. So, in other words, after tax accounts.
David Nelson:
So, a big difference. With ETFs, you don’t have that that you have to deal with each and every year, so it’s much more flexible and from a tax efficiency standpoint, much better.
Brandy Auterson:
All right, David. As always, thanks for taking the time to talk with us.
David Nelson:
Thank you, Brandy. Appreciate it.
Brandy Auterson:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.