A growing number of mutual funds are converting to exchange-traded funds (ETFs), providing more tax efficiency for investors. Since early 2021, over 70 mutual funds have converted to ETFs, with more conversions expected in the future. The conversion is tax-free for investors and offers the benefit of not distributing capital gains at the end of the year, unlike actively managed mutual funds. While conversions are still relatively rare, they have been seen mostly in smaller mutual funds worth around $100 million or less. Future conversions are likely to occur in smaller, actively managed mutual funds outside of 401(k) accounts.
NextEra Energy Partners (NEP), a company that acquires and manages clean energy projects in the U.S., is currently offering a high yield of 13.3%. NEP's stock price has declined, making it an attractive investment opportunity for income investors. Despite a decrease in growth expectations, NEP continues to provide a double-digit yield and plans to maintain 6%+ growth in the near future. The company is focused on regaining investor trust and reducing its cost of capital. Additionally, NEP benefits from tax-efficient U.S. laws, allowing investors to receive tax-deferred income for at least 15 years.
Exchange-traded funds (ETFs) have become increasingly popular among investors due to their tax efficiency and lower expense ratios compared to mutual funds. ETFs offer more control over the tax impact and can help minimize taxable income. They can be used in both core and satellite portfolios to provide stability and diversification, respectively. While ETFs are less risky than individual stocks, they still have the potential for significant gains and losses. Overall, ETFs have evolved over the years and are now a viable option for investors looking to optimize their portfolios.
Anne Scheiber, a former IRS auditor, turned a $5,000 nest egg into a $22 million fortune through three simple strategies. She lived frugally, saving 80% of her salary and spending very little on food. Scheiber invested in what she knew, holding long-term positions in companies like PepsiCo and Chrysler. She also employed tax-efficient strategies, such as avoiding capital gains taxes by holding onto her stocks and transferring dividends into tax-exempt bonds. Scheiber's estate was ultimately donated to education, benefiting financially and academically deserving Jewish women.
