Welcome to ETFs 102.
In ETFs 101, I covered the basics—what exchange-traded funds (ETFs) are, how they differ from traditional mutual funds, their advantages and disadvantages and how I see them fitting into a portfolio.
In today’s “lesson,” I’ll discuss the nitty-gritty of ETF pricing, returns and tax mechanics. Let’s dig in.
Dynamic Returns
The ETF vehicle’s advantages—intraday trading, low minimums, tax friendliness—come at a cost: complexity. And, well, the way ETF prices are reported and how distributions from ETFs are reinvested are more complicated than you’d expect.
First, let’s take a look at pricing.