When exchange-traded funds really flex their ‘tax magic’ for investors

Experts suggest that investors can reduce tax losses in their portfolio by using exchange-traded funds (ETFs) over mutual funds. ETFs offer unique tax advantages, particularly for investors in taxable brokerage accounts, as they are generally more tax-efficient due to their structure. U.S. stock mutual funds tend to generate more capital gains compared to ETFs, making ETFs a better option for non-retirement accounts. However, bonds may have a smaller advantage in ETFs over mutual funds. Overall, ETFs are recommended for certain asset classes, such as U.S. stocks and actively managed funds, to maximize tax efficiency.