The Case for Short Duration Investing
How short duration investing can accomplish similar outcomes to cash management solutions.
All investing involves risk, including the possible loss of principal. Short-duration and ETF strategies have specific risks to consider. Please see our full risk disclosure below before investing.
Calculate the Impact of Gross Versus Net Returns
This calculator is for illustrative purposes only and is not a guarantee or projection of future results. The results are hypothetical and do not represent the performance of any specific investment.
Hypothetical Growth (Standard Tax Drag): 0.00
Hypothetical Growth (Tax-Efficient Vehicle): 0.00
Difference: 0.00
So What's the Strategy?
Why the ETF Vehicle?
ETFs May Help Narrow the Difference Between Pre-Tax and Post-Tax Returns
Historically, the reduction in returns due to tax burden has been significant, measuring 1.96% in 2020 and 1.88% in 2021.1
In contrast to active and index funds, ETFs demonstrate vastly lower capital gains distributions: 0.12% for ETFs versus 3.72% for active funds and 2.11% for index funds.1 This difference can dramatically impact net returns.
1Moussawi, Rabih and Shen, Ke and Velthuis, Raisa, The Role of Taxes in the Rise of ETFs (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3744519 or http://dx.doi.org/10.2139/ssrn.3744519
Refresher on ETFs
Disclosures and Risk
There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy can protect against market risk or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be either suitable or profitable for a client’s portfolio.
Unlike mutual funds, exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF's net asset value (NAV), and are not individually redeemable directly with the ETF. Brokerage commissions and ETF expenses will reduce returns. ETFs are subject to specific risks, depending on the nature of the underlying strategy of a fund, which should be considered carefully when making investment decisions. For a complete description of a fund’s principal investment risks, please refer to the prospectus.
Short duration fixed income investments are not risk-free and may be subject to market fluctuations, interest rate risk, and credit risk. A strategy focused on short-term bonds may underperform longer duration strategies in declining rate environments. Capital preservation is not guaranteed.
Investments in fixed income securities may lose value due to changes in interest rates, credit ratings, and market conditions.
Options are not suitable for all investors. There are risks involved in any option strategy. Individuals should not enter into option transactions until they have read and understood the option disclosure document titled "Characteristics and Risks of Standardized Options," which outlines the purposes and risks of option transactions. This booklet is available from your Financial Advisor or at http://www.theocc.com/about/publications/character-risks.jsp.
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
The information provided on this website is for educational and informational purposes only and investors should determine for themselves whether a particular service or product is suitable for their investment needs. Please refer to the disclosure and offering documents for further information concerning specific products or services.
Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments. Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.
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