Vanguard 500 Index Fund ETF, fixed income? [closed]

Question

It seems some ETFs pay dividends other are fixed income. How can I know the one I'm interested in (i.e. Vanguard 500 Index Fund ETF) pays dividends or have fixed incomes?

Answer 1

I think the OP is asking about an index fund that holds stocks rather than bonds.

In the case of stock index funds, it's possible for the fund manager to manage the buying and selling of stocks in the funds in such a way as to limit or even eliminate capital gains distributed to the individual investors and instead raise the value of the shares. For investors who are holding the fund for a long time, the capital gain can be deferred until they sell the ETF shares at a higher price. However, when the stocks pay dividends, those have to be paid out to the ETF shareholders and are taxable on a yearly basis.

If you're going to invest in an index ETF or mutual fund in a taxable account, you should consider both the expense ratio and the tax cost ratio. This measures the taxes you would have to pay on the dividends and capital gains that are distributed to shareholders. For example, Vanguard's S&P 500 ETF (VOO) has recently had an expense ratio of 0.09% and a tax cost ratio of 0.49%.

For reasons that I don't fully understand, mutual funds typically have somewhat higher tax cost ratios than ETF's- this is one of the major advantages of ETF's.

You should read the prospectus to know what the fund has done in the past and is likely to do in the future. You can also use various websites to look up the past performance of the fund.