Today, ETFs are much more readily available in 401(k) plans. And it’s no wonder. ETFs can offer a number of potential benefits that can make them extremely effective in helping participants reach their retirement goals:
• Diversification in one investment and broad asset class coverage
• Low fees and no sales loads ensure more of the investment goes to work for your future
• Daily transparency of holdings, so you always know what you own
• Tax efficiency1
• Intraday liquidity
ETFs come in every style and asset class in the investment rainbow. They can help participants generate income, achieve long-term growth and gain more complete diversification. And today, more participants are gaining the chance to benefit from the many advantages ETFs offer.
Read our 401(k) series here.
This post was republished with permission from the WisdomTree blog.
1The creation/mechanism of ETFs is what allows them to be very tax-efficient. Specifically, the ability of portfolio holdings to be transferred on an “in-kind” basis during redemptions allows ETFs to be tax-efficient and able to minimize their capital gains distributions. The reason: When shares are redeemed in-kind, the ETF is not liquidating or selling shares on the market- which would trigger gains inside the ETF. Rather, with in-kind redemptions, an exchange is made between qualified institutional investors and the fund company; in exchange for shares of the ETF, the qualified institutional investor receives underlying holdings of the Fund on an in-kind basis, and this swapping of holdings for ETF shares does not trigger a taxable event for the fund.