The Jon Sanchez Show
10/14-What are Exchange Traded Funds, aka ETFs?
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And I'll tell you when you're in the middle of the ocean you kind of think that the earth is flat. You know? That makes sense. You can't see one anywhere. Yeah. It makes sense. I just always think that the bond geeks get today. I know. People don't and it's just a noise. Yeah. Yeah. How can that be? How can they you know get to celebrate the day and we have to work? They always do. They're lucky. They've ever written into their contract somewhere. Just wait and see when when when us equity guys unionize like you and I were talking about. Yeah well I it was always no fair because I traded international for the first like half of my career and like we got hosed because we didn't get the international holidays and you know the US ones I had to work. I'm like this is awful. What did I do and the hours are terrible. The hours are terrible and they get probably about you know two months worth of vacations. Right. I don't get all the European holidays. Right. I wanted to get pregnant so I could take six months off whatever French get but no. There you go. There you go. In the meantime we'll just keep our nose to the grindstone. Yes. Our clients you know taking care of so they can go vacation. Exactly. And it's entertained. How about that? That's what we get paid to do. Amen. Well happy Monday again to all of you. Let me tell you what we have lined up for you. There's a Monday afternoon. Not a lot of activity on the market today. We'll do a market summary for you. Kind of tell you it was somewhat of a a lack of conviction type of day even though it turned out to be a pretty decent day. A record setting session for the Dow as well as the S&P. Just like on Friday and a few other days last week. So we'll go through all that with you and then we're going to get into our topic. We haven't touched on this one. Gosh long long time. Periodically you hear Jason and I talk about ETFs or exchange traded funds. Right. Some of you know what they are but I bet a lot of you don't because in Wall Street's terms they're rather new. They kind of been around really like in the early 90s which I know sounds like a long ways away which it was but if you look at you know how long stocks have been around and mutual funds and things they're still kind of the new kid on the block. Well I will be proud to say Jason I don't know if I've shared this with you. I was when they literally came out and I can't tell you the symbol we're going to try not to slip today. I was going to say you guys listen to this show because it won't be online unfortunately because I will say something that will get me in trouble and we won't be able to put it on the podcast. So really listen. Listen hard. There you go. There you go. So the ETF that tracks the S&P 500 of one of many. I was one of the first ones to use. I mean literally days after it first came out in the early 90s and I thought man these are the coolest products in the world. Well here we set you know what 24 34 years later and there are a mainstay of Jason and I's business. It just we love exchange traded funds and so we thought we would do for you this afternoon is share with you what the heck these crazy investments are and I say that tongue in cheek they're not crazy by any means. They have and it's been this way for quite some time. They have surpassed mutual funds as far as where the new money goes to a lot of people no longer use mutual funds especially in taxable accounts and we'll kind of explain why. But really what we want to do today is just give you a good background of what ETFs are how we use them some of the key features of them. Give you a little bit of history just so you know again they even though they're the new kid on the block they've been around for a long time. We'll talk about trading costs and and some of the things that Jason and I have learned in our you know 20 plus year careers as far as liquidity issues because just because it's an ETF they're not all traded the same or handle the same and you'll never know you'll never know until you get a day where the market is selling off faster than you can blink an eye and you press the sell button and all of a sudden there's no orders on the other side or no other buyers on the other side to buy your ETF and you're going what in the world is this well liquidity is a major issue for some of the smaller ETFs. We'll talk about market risk some tax implications some misleading benchmarking information that a lot of people can't figure out when they buy for example an S&P ETF why it's not tracking the S&P directly so again it's just going to be a great overall lesson then you can determine or you and your advisor can determine if ETFs are appropriate for you but you know we love this asset class do we not my friend? Yeah no it is it's the nice part about ETFs just keeping it simple versus a mutual fund is they trade during the market day so you can buy and sell an ETF all day you mentioned liquidity we'll get into that later but you don't have to put it in order and get tonight's clothes you can participate in that exposure immediately while the markets are open and inside of an exchange traded fund is just a either few holdings or thousands of holdings it just depends on what type of ETF you're trying to buy and what index or set of holdings you're trying to replicate so yeah another very very actively used and and we use them a ton. Yep exactly pinch of plans we use them as far as hedges are concerned or filling in areas because of you know as I will touch on here in a moment what I personally love about ETFs so among the many many hundreds of things but I love how we can laser in when we buy sector ETFs I love how we can laser in if we're bullish for example let's us say on semiconductors utilities or defense or whatever it is we can laser in into that area and go okay you know what we think defense is gonna do really well so let's put whatever ten percent of our portfolio into defense and then that defense ETF owns the likes of Lockheed Martin's and Raytheons and so on and so forth and therefore you have that exposure to that sector without the risk of owning individual stocks right we've all seen what can happen to some stocks I mean stocks overall Lord knows they usually will make you money over time if you obviously if you own the right ones but we've all experienced it even as professionals you know you own your favorite stock and then something happens and inevitably it's after hours well I'll give you a prime example just happened this weekend what was it late Friday after the market closer Saturday Boeing announced that that there are laying off 17,000 of their employees 17,000 10 percent of their workforce because again the ongoing machinist strike well again you could have loved Boeing for any reason whatsoever but there's nothing you could do about that right that's the risk of owning an individual stock is anything both positive and negative can happen pre-market after hours or obviously during the market hours where an ETF you're going to own as Jason said a basket of stocks either in a certain area or certain strategy or of a major indices you can buy them on the Dow the NASDAQ 100 and obviously as we said the S&P 500 mishap small caps you name it there's a you tell me how many are we up to now didn't you chance last time I checked wouldn't they're like north of like three or four thousand I think way more there's and way more yeah it's been a while since I've looked I'll do that math but we just keep hitting the reset button and it just grows yeah right I mean to the point where we probably you have saturation you have too many choices of one thing that you know now investors need to do their work on which ETF has a lower cost or liquidity as you mentioned or is it overweight certain things where not all semiconductor ETFs are the same for example you go in and look at what they hold in the nice part about ETFs as they list their holdings every single day so you can see every day what the waiting is inside of that ETF you know some will own more in video for example and less Taiwan semi and you know you're like thinking you're getting a diversified portfolio and it may be really concentrated in a handful of names so don't just buy it based on the label you want to dig at it a little bit and you know the Google machines very easy to do I just Google the ticker or whatever and put ETF afterwards and right away you can get the holdings and see you know performance and what the fees are there's a lot of good transparency to own an ETF because a mutual fund they don't update their holdings until the end of the month and really it's after that or sometimes you it's even quarterly it depends on the funds so very much another positive for ETFs versus mutual funds absolutely well according to a white charge way you're saying that as of August 31st of this year there are 3,378 ETFs I'm guessing that's just gonna yeah that's just us listed that okay there's okay so you know probably tack on another couple thousand on the international side and yeah you're right there so there's a ton of them what was your guess you said three to five thousand I was gonna go like ten so you're way better yeah I just thought you know the amount they feel like there's a hundred new ETFs every day it feels like sometimes but yeah it's a you can get as granular and then there's levered ETFs or again we're definitely not gonna pitch those but you can you can really get any sort of exposure you want up down sideways they've got now barrier ETFs they've got you know all kinds of things so the world is you're is you're oyster to get confused in yeah and here's another little piece of advice we'll give you because again we have access to just about any of those keep it simple stupid the kiss principle right you can get into again so many granular things as Jason just mentioned folks you can you know one of our strategies we like to do a lot is is a is a core satellite strategy where you can use like you know there's 11 sectors that make up the S&P 500 you can use the the you know ETFs of each of those 11 sectors and just use that as I'll kind of call it your again your core and then you can go out and buy individual stocks as your satellite or even you know some other ETFs but you know it's they're just amazing investments they really are and there's all kinds of great information out there Black Rock has a great site I mean Vanguard has a great site fidelity there's more information than you know you can shake a stick out out there you just got to research it but we'll hope to cover a lot of that with you this year afternoon and give you a good basic understanding and then like I said you decide if they are they're appropriate to your portfolio or not all right speaking of portfolios let's talk about how years did when we come back give you a market recap but first let's turn it over to Kristen Snow she's in the right now traffic center hey Kristen welcome back to the John Sanchez show on News Talk 780 KOH with Jason Gaunt we finished up a 201 on the Dow 0.47 percent gain to a record close of 43,065 now as I gain 156.87 percent close in at 18,502 and a record finished for the S&P 500 higher by 43 points 0.77 percent to 5,859 down half a percent on a well 75 46 a barrel $10.70 loss on gold and it's at 2,000 676 30 and again the bond market close and observance of Columbus Day take it away mr. Gaunt give us the details of today's action yeah I think the biggest two big reasons we talked about before the buyers are higher right as the market breaks out which it's doing now you're getting a big chase and also you had the case that the bond market wasn't open today which has been the thing that bring out the boobards as interest rates have been moving higher despite the fact that the Fed has been cutting rates and it's got a lot of people perplexed right we've talked about the short end of the curve is what the Fed controls the market controls the longer end of the curve and the market's starting to tell you that despite the Fed wanting to lower interest rates for all the reasons that inflation at least in their view has come back into check and is getting closer to target the markets you know calling into question whether a lower interest rate environment is going to in fact cause inflation to come back and rear its head the stock market tends to track inflation it's bid up today for sure but I think it was not a very very high volume day overall as far as the markets are concerned and the areas that have been working continued to with technology and utilities financials being in the top half of the leaderboard today it's just it is it's a it's a healthy tape you've got remember October 10th we mentioned on the show on Friday tends to mark the seasonal low as far as the markets are concerned as we move into the next six months which tend to be the best half of the year again it's you know it's six months but it usually ends up being the lower point for the next six months being the best time because you and so I think investors who have been expecting a pullback have not gotten it and they've been forced to chase this tape and that's a lot of what we saw today they chase the winners the Nvidia's the semis things along those lines that they may have tried to get underweight remember technology is not massively over-owned anymore in fact it's massively underweight and that's part of the area that I think people were you know trying to run back to as Nvidia makes all-time highs again today yeah it's amazing how the stock was kind of thrown out just what within the last month everyone kind of lost momentum in it and didn't hear a lot of talk about it and not real excited and then they had you know what it was an event I think last week and you had their CEO show up on CNBC just out of the blue off the cuff as they said the other day and he's getting his name he's getting out there a lot and kind of you know shaking hands kissing babies and it just seems like everybody's now has refalling and loving the video you know it's good to see you know blackstone adoption was you know mentioned as being off the charts as far as the demand for that new chip setting so blackstone focuses more on video and video generation and versus you know the other was certainly more of a speed function with the H100H 200 but Blackwell supposedly has a pretty important video aspect to it too which could help from a generative AI on the video side so that's another part that people are excited about but you know it's a it's been a pretty amazing stock for sure it really has three dollar and 27 cent gain in a 2.4% 130 807 apple coming around again now are finished up today $3.75 1.7% 2 31 30 meta had some gains our problem childhood today was caterpillar right they started off well or started off tough for the stock they got a downgrade this morning by Morgan Stanley and boy it was down pretty substantial in the pre-market but only finished the day down a little over eight bucks so not too bad about a 2 percent loss or so $3.93.95 so nothing too major there but that was a pretty bold move downgrading that one because it's it's been on a terror recently all right you're up to date folks let's get a four-minute head start Jason and our topic this afternoon that of course what are exchange traded funds better known as ETF so I'm gonna save time and I'm just gonna refer to him as ETFs going forward so let's start things off with this the basics of what ETFs are and then we're gonna go into a little history because I think it's important to kind of understand where these things came from so Jason you have a great example the first segment I was recap at one more time an ETF trades throughout the day like a stock so that's the benefit of it right you have intraday liquidity but yet you have the diversification of a mutual fund remember mutual fund owns 50 to 100 plus different stocks ETFs can do the same thing they they are a basket of stocks and again depending upon which ETF it is determines how many stocks are in there so it can be 50, 20, 10, hundreds, thousands whatever it may be so you get the diversification of a mutual fund but yet you get the intraday liquidity of a stock and that is probably one of the most important things and why portfolio managers like ourselves and institutions love ETFs because we can get in we can get out we you know if something happens intraday in the market we got to you know try to preserve the capital of our clients we can shift out you know into cash if we want to we're a mutual fund remember mutual funds are not going to price till after the stock market closes so it's too late right if Jason's a client of mine and I've got him loaded up and a bunch of mutual funds and we're doing an account review at 10 o'clock and all of a sudden at 10 o'clock market starts selling off maybe there's a you know missiles fly whatever the reason is I can press the sell button but we're not going to sell until the end of the day so I have no idea what he's going to get out at but with an ETF just like a stock press the sell button and literally about as fast as you can blink your eye in most cases you're gonna be out of the trade so that really is the main benefit that we as again portfolio managers really enjoy doing that Jason let's let's kind of start on our key features then we'll get into some history so the diversification was one of them let's talk about liquidity because this is where a lot of people get confused about every ETF is the same meaning hey if I got to get out to my example I can get out but not the case whatsoever well yes and no right so an ETF I use the term market maker a lot a market maker is someone that Morgan Stanley Citadel Goldman Sachs you name it any of these firms that buy and sell securities for clients ultimately there's a buy a bid price or a place I can sell anything and there's ultimately a level I can buy it on the other side it's just a matter of where do you want to take it we always joke and say there's a price for everything it's just a matter of how far though I want to push the thing up or down and what market makers do is let's take an ETF for example that's actively traded if there's 10 securities inside of that ETF they know what the constituencies are of that basket if it's 10 10 percent names they know where all the prices are for all the stocks inside of it even though the ETF itself may not be very liquid as in it doesn't trade a lot it's a very obscure in terms of what it owns the underlying basket has prices and they have their own liquidity if it's a illiquid semiconductor ETF but it's got Nvidia and and Taiwan semi and all these things inside of it the market maker knows what the true value of that ETF is so they'll they're willing to buy it you just sometimes made me need to push it down enough to have them perk up their head to be like wait a minute and I'm being very very simplistic here because they have systems that are doing this constantly all day long but you know you may have to push it down five cents or ten cents to go find that buy because if you're a seller because there is a true value for the underlying holdings so liquidity is always around it's just a matter of is it a penny wide is that a dime wide and nickel wide so on and so forth that's a good thing too before you go to buy an ETF that again we talked about semiconductors go make sure it's liquid because even though it may be the neatest thing you've ever seen it may not trade a lot so to John's point very much when you go to get in it or get out of it you may be paying more than you want when you buy and selling it lower than you wanted to when you get out versus maybe something else is really close but trades a ton of shares that you know you're just moving at a penny or so on either side to buy and sell so liquidity very much something to to be aware of when you're buying it or selling you know an ETF. The only time in my career I don't know about you the only time in my career I was not able to get out of an ETF was when the finger trade I'm trying to figure out I'm trying to remember when that was two thousand two thousand yeah twelve time frame yeah yeah I remember I remember yeah I was sitting in my desk and and managing our own money and and yeah this fat figure trade happened folks and all of a sudden you know the market's dropping 500 I mean it was like an odometer of a race car it's just dropping dropping dropping and I tried exiting to to preserve our capital and I there was there was nobody on the other side because the prices were falling so fast they they they couldn't give you a price and so you got stuck holding that so that was the only time I don't know what you the only time I've ever experienced a lack of liquidity yeah and that's you know those are the market makers moving away because they don't have accurate pricing for the underlying holdings right so if they lose good pricing data for the underlying holdings of the basket they're not going to go over and bid for the basket or the bid for the ETF and that's where you know again we'll talk about some of the negatives later but that's more of a market structure concern is if you know you have some data issues of some kind you know it can cause problems with what is the real price of this thing if these four stocks I don't have good prices a positive is that company announces earnings after the close I can and that stocks halted but I can see an ETF that trades it owns it sometimes you can back into what the market's implying the price for that thing is so lots of things we can talk to about the break you got it we've got two more key features then we'll get into a little bit of history on it and then some of the negatives turned over to Greg Neff he's got news traffic on weather hey Greg welcome back to the John Sanchez show on this talk 780 KOA to what Jason got we finished up 201 on the Dow the NASDAQ rose 159 there actually 160 gets around her up closer to 160 and the S&P higher by 45 both the Dow and the S&P record closes all right we're just getting into our discussion of a great asset class called exchange traded funds or ETS but first let me give you a reminder my friends over at S&W tractor oh they're coming into fall they are ready to wheel and deal on all kinds of models the small ones the big ones everything in between I'm talking about the coyote tractor a great piece of machinery that will last you for years I know I've owned them I own one now and they will do incredible hard work for you 0% financing select models an incredible dealer that knows what the heck they're talking about and that will give you the service after the sale stop by and see stand on the crew located at 4880 East Nylon and Carson City online at S&W tractor.com phone number 882 1225 82 1225 all right let's get into our discussion Jason on the ETF side of things and give you some some good background but before we get into the history so I think it's important to understand where these things came from they're not just some flash in the pan we're talking about some of the key features right the diversification there are basket of stocks liquidity again not all ETFs are created equal when it comes to liquidity that's something you need to understand when you buy them check out what the volume is and liquidity and so on so forth cost effectiveness this is another one Jason the ETFs we have what would you say our average internal cost is 5-10 basis points 18 total of 18 yep yeah yes then anyways they are very low internal expenses on most ETFs compared to mutual funds so that's another great thing everybody's starting to watch a buck of course and then Jason brought up a great point in our first segment the transparency usually they're going to disclose their holdings daily where I mean again mutual funds sometimes you don't find out till you know well after the quarter ends in many cases so you can see exactly what you own now let me just real quick Jason let me run through the history of this because again this is kind of fascinating to figure out where these came from and again what makes them so unique they traded throughout the day like a stock but diversification of a mutual fund right idea started back in 1989 actually started right after the the 1987 stock market crash everybody kind of went whoa wait a minute here we need a product that again is doing I can talk I'm telling you about gives us intraday liquidity trades like a stock in other words but yet gives us a basket of stocks so we don't have all of our eggs in one basket so that's kind of when they started thinking about it the first one was launched in 1989 on the Toronto stock exchange here in the US the first US ETF was was launched and it's the one that is extremely popular now that follows the S&P 500 that's still one of the largest and most what's that it is eight legs has eight legs there you go there you go as you go research out there look for things that have eight legs yeah there you go I like that and it's still one of the largest and most heavily traded ETFs in the entire world then late 90s so that was again it was about 1993 uh late 1990s ETFs gained traction with new products emerging track various indices right the Dow the NASDAQ so on so forth also track sectors and track different asset classes 2000s rural around they expand tremendously new ETFs were introduced including those that track bonds commodities international markets Jason mentioned leverage and inverse ETFs um in 2004 the first one that I think changed the world of gold was created and it's an ETF that tracks gold and marked the first introduction of a commodity based ETF now why do I say that because well this particular one for every dollar they bring in they buy a dollar of gold every dollar that sells they sell a dollar of gold is that something the same way it is now yeah so they do own physical gold inside of the ETF many of them do and remember if you buy this security they're not buying more gold it is if you are creating as in I want to deposit X amount of gold or dollars rather into your fund and I want you to then go out and acquire additional gold or on the vice versa I want to redeem directly from the portfolio uh and then they would have to technically deliver you that exposure to the underlying asset but when you buy and sell an ETF it doesn't mean that it's buying more or selling more as long as no new shares or shares are collapsed they could have a million shares outstanding and I go buy a bunch today from john and then john buys it back for me later you know probably lower because he's a better trader than me and we still haven't created any gold buying we've just bought and sold a security that owns that physical asset inside of it so that's a common confusion I think with ETFs where uh just because you buy and sell them that doesn't mean that it's creating more or selling some you actually have to physically go request it yep once you on the side at one point in your career where you're actually creating ETFs like because they yeah I mean I didn't work out the banks but we would go out and buy the underlying basket and deliver it to them in order to get shares right so if you can go out and buy the underlying basket so that's arbitrage going on all the time I talked to you earlier about where uh you'll look and see what the underlying basket is trading at versus the ETF and that constantly Susquehanna, Goldman, all these guys have statistical market making uh capability that if if they're able to go replicate if it's got ten holdings in it and the ETFs trading at $10 yet the underlying basket is really trading at $9.80 they'll go buy the underlying basket short the ETF and then go to whoever the ETF market maker is and say hey here's the stocks here's the ETF I want to collapse these together right and same vice versa you know if I wanted to go spend say I have a new portfolio coming in which we've done many times in the past I've got a you know $500 million to invest and I want to get a exposure to the market first via the eight-legged ETF um and I want to go get exposure to the market first and then over 10 days I'm going to work out of that ETF and buy the underlying holdings so I can not have too much tracking error that's where you'll go in and you know give them $500 million and they'll go buy the underlying basket and then deliver you the ETF as a holding so there's lots of ways to do it but for most folks listening you're just buying and selling these assets that have an underlying basket that they track that's a passive ETF right so passive ETFs for the S&P 500 for example they the the ETF provider doesn't care what the basket owns in terms of you know they're not making an active decision of I want to own more Google or I want to own more Nvidia if at the end of the day S&P 500 says these are the weights of the ETF then the provider that created that ETF needs to go out and buy the exact weight of that index so they don't have tracking error each night that's passive as in they're just following whatever the provider says an active ETF it actually does pick its own things it runs an active index and then the ETF will track that holding so that's the difference if you ever see passive indexing it's just the Russell 2000 the S&P whatever it's just an ETF that tracks that index whereas something active truly is picking stocks making bets as to I want to own a little more of this or a little less than that so as you're looking that up active and passive is important so like in the investment there are negatives associated with it and we have to do our or do diligence for you and say look at not everything's you know roses right there are some negatives so the first one not so much anymore but definitely in years past the trading costs right as we said they trade throughout the day like a stock this so you'd have trading costs nowadays yeah again you can pick your favorite flavor but there's a ton of online brokerage firms that do not charge anything to buy or sell an ETF you still have your internal expense as we were mentioning you always want to look and see what that is and some of the more specialized ones will have higher internal expenses than the indices ETFs so you always want to see that and you know it's not really a trading cost but it's an internal expense we touched on the second negative which is the liquidity we chucked out Jason's touched on the third one which is the tracking error so you know if you think you're buying an ETF that tracks again pick the S&P the Dow the mid cap small caps etc you're not going to really track it they're going to be off for the reasons that Jason mentioned now there's complexity of certain ETFs a lot of people think oh I want to buy this certain leverage their inverse or commodity ETF or some big fancy you know name or something that's doing all these crazy strategies you got to understand what you own you got to understand how they work because a lot of times they don't explain it you just buy it by the name don't do that so please understand the complexity of their ETFs you own yeah real quick there just real good before the break perfect example I've had clients come in before to us from either self-managing or whatever where they own you know the 2x gold ETF or the 3x whatever and this thing is just going down down down down down forever and they're like I'm just holding on to it in case gold or whatever is going to go up in the future and I'm like regardless of what the the underlying does you're just going to decay in this thing and so that's why again give us a ring if you have questions about it but these leveraged ETFs that by design they buy high and sell low remember if the basket moves they have to chase it in order to add to their holdings on the leverage side and same thing if it goes down they have to chase it on the downside too to reduce their holdings from a leverage standpoint so and it's a short-term holding that's our tip do not own these things as investments these 2x 3x whatever because over time you will just lose money if the thing doesn't move enough to make up for all the decay so watch out that'd be my one little tip anything leveraged make sure you know what you own because odds are you'll just lose money you got it okay we're gonna hustle through five more risk of owning an ETF when we come back let's turn it over to Kristen Snowden wrap us up in that right now traffic center Kristen welcome back to the John Sanchez show on his talks 780k oh it's Jason and I have been talking about again ETFs exchange traded funds how they work now we're into the negative side of things once again let's room through these one more time very quickly trading costs liquidity issues tracking errors the complexity of certain ETFs because again there's thousands of these the market risk that name that title stands for itself right again they trade intraday like a stock so you're gonna have wild price movements both upside and downsides you need to be aware of that let's talk about the tax implication side of things Jason and please mention something that a lot of people have no idea about when they buy a foreign ETF and that is hmm don't plan on doing your taxes on April 15th yeah no definitely the foreign taxes paid and all those sorts of fun things so the difference between a mutual fund and an ETF will keep it very high level you buy a mutual fund inside of the mutual fund they take those dollars if it's a dollar-based fund and they go out and buy a bunch of stocks keep them open to the stock ETF or a stock mutual fund for example as the portfolio manager buys and sells stocks throughout the year or they buy 10 names and they don't sell them for five years and then they sell them once you buy those capital gain because it's a trust those capital gains pass on to you as a shareholder of the mutual fund even if you owned it for five years or one day if you're the person holding that fund when they make those sales and you happen to be the holder when they pay out those capital gains you get stung with the tax implications in a taxable account ETFs on the other hand they're underlying holdings turnover so often they're buy sell buy sell buy sell that you tend to not have any capital gains that are disseminated from an ETF it's because of that create collapse mechanism I talked about earlier so they're much more efficient from a tax standpoint yes if you buy the ETF yourself and you sell it at a gain you know within a year it's a short term or hold it longer than a year it's long-term capital gains but the underlying basket changes and the buying and selling by the manager of the ETF if you hold it long-term typically in 99 percent of the time doesn't affect you from a tax standpoint so that I would argue is probably one of the largest benefits of owning an ETF is much more tax simplicity than a mutual fund where you end up being a bag holder depending on when those capital gains are paid yeah as we always say be very careful owning a mutual fund in a taxable account for the reasons Jason just mentioned and especially in a declining stock market because that's when those managers tend to sell those holdings and again you're losing your principal value and you get hit with a tax bill not good final three points a potential for over diversification again understand what each ETF owns so that you're not owning the same thing even though you have a different ETF that they aren't owning the same thing what we call overlap and then we touched on the misleading benchmarking you'll never really track the exact movement of the index because again of the bi-spread differential the cost etc and then the manager at risk of actively managing ETFs these are starting to become more popular where they're actually buying and selling that underlying basket not just buying and holding like the majority of them are so once again you got to understand what you own why you own it and the pluses and the minuses but overall we'd love the asset category great job my friend yeah thank you have a great evening you do this very same and we will do to get tomorrow on the john sanchez show god bless have a great evening this program was sponsored by sanchez wealth management the material in this program was intended as general information only and should not be taken as specific investment tax or legal advice none of the information on this broadcast was intended to be a solicitation for the purchase or sale of any security further information is available by contacting john at sanchez wealth management dot com or seven seven five eight hundred one eight oh one john sanchez offered securities and advisory services through independent financial group llc a registered broker dealer and investment advisor member finra sipc securities offered only in states john sanchez is registered in sanchez wealth management llc an independent financial group llc are unaffiliated entities hey amazon prime members why pay more for groceries when you can save big on thousands of items at amazon fresh shop prime exclusive deals and save up to 50 on weekly grocery favorites plus save 10 on amazon brands like our new brand amazon saver 365 by whole foods market a plenty and more come back for new deals rotating every week don't miss out on savings shop prime exclusive deals at amazon and fresh. 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