Exchange-traded funds have steadily gained popularity among investors in recent years — a trend experts say is largely due to advantages like lower tax bills and fees relative to mutual funds.
The first ETF debuted in 1993. Since then, ETFs have captured about $9.7 trillion, according to Morningstar data through August 2024.
While mutual funds hold more investor funds, at $20.3 trillion, ETFs are gaining ground. ETF market share relative to mutual fund assets has more than doubled over the past decade, to about 32% from 14%, per Morningstar data.
“The simple fact is, the structure of an ETF is a superior fund structure to a mutual fund, especially for taxable accounts,” said Michael McClary, chief investment officer at Valmark Financial Group, who uses ETFs to build financial portfolios for clients.
Here are four reasons why McClary and other experts say ETFs took off.
1. They have ‘tax magic’
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ETFs resemble mutual funds in many ways. They’re both baskets of stocks and bonds overseen by professional money managers.
But there are a few distinctions.
At a high level, ETFs trade on a stock exchange, like the stock of a publicly traded company. Investors generally buy mutual funds directly from an investment company.
Here’s a look at other stories offering insight on ETFs for investors.
Investors generally owe capital-gains tax to the IRS on investment profits, typically from the sale of investment funds or other financial assets like individual stock and real estate.
However, mutual fund managers can also generate capital-gains taxes within a fund itself when they buy and sell securities. Those taxes then get passed along to all the fund shareholders.
In other words, these investors get a tax bill even if they personally didn’t sell their holdings.
The structure of an ETF, however, allows most managers to trade a fund’s underlying stocks and bonds without creating a taxable event for investors, experts said.
This is “tax magic that’s unrivaled by mutual funds,” Bryan Armour, director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar, wrote earlier this year.
In 2023, about 4% of ETFs distributed capital-gains taxes to investors relative to more than 60% of stock mutual funds, Armour said in an interview.
But the advantage depends on a fund’s investment strategy and asset class. Investors who hold actively managed mutual funds that trade often are more susceptible to tax loss, whereas those with market-cap-weighted index funds and bond funds “don’t benefit that much from the tax advantage of ETFs,” Armour wrote.
Additionally, “the taxable argument doesn’t matter in a retirement account,” McClary said.
That’s because workplace retirement plans like a 401(k) plan and individual retirement accounts are tax-advantaged. Investors don’t owe capital-gains taxes related to trading as they would in a taxable brokerage account.
“The 401(k) world is a place where mutual funds can still make sense,” McClary said.
2. Costs are low
The first ETF was an index fund: the SPDR S&P 500 ETF Trust (SPY).
Index funds, also known as passively managed funds, track a market index like the S&P 500.
They tend to be less expensive than their actively managed counterparts, which aim to pick winning stocks to outperform a benchmark.
Investors have equated ETFs with index funds since their inception, even though there are also index mutual funds, experts said. The first actively managed ETF wasn’t available until 2008.
ETFs have therefore benefited from investors’ long-term gravitation toward index funds, and away from active funds, as they seek lower costs, experts said.
The average ETF costs half as much as the average mutual fund, at 0.50% versus 1.01%, respectively, according to Armour.
“Low costs and greater tax efficiency are an easy win for investors, so I think that’s the simple answer that’s been so effective for ETFs,” Armour said.
That said, investors shouldn’t assume ETFs are always the lowest-cost option.
“You may be able to find an index mutual fund with lower costs than a comparable ETF,” according to a March 2023 report by Michael Iachini, head of manager research at Charles Schwab.
3. Financial advice fee model changes
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Financial advisors have also undergone a shift that’s benefited ETFs, said Morningstar’s Armour.
Retail brokerage firms historically earned money from commissions on the sale of funds and other investments.
However, many firms have moved toward a so-called fee-based model, whereby clients incur an annual fee — say, 1% — based on the value of the holdings in their account. A virtue of this model, according to advocates, is that it doesn’t influence an advisor’s investment recommendation as a commission might.
Low costs and greater tax efficiency are an easy win for investors, so I think that’s the simple answer that’s been so effective for ETFs.
Bryan Armour
director of passive strategies research for North America at Morningstar
The shift is “one of the most important trends in the retail brokerage industry over the past decade,” according to McKinsey.
ETFs work well for fee-based advisors because they’re less likely than mutual funds to carry sales-related costs like sales loads and 12b-1 fees, Armour said. The latter is an annual fee that mutual funds charge investors to cover marketing, distribution and other services.
While brokerage firms may charge a commission to buy ETFs, many large brokerages have ditched those fees.
“There was a whole generation of advisors who only used mutual funds,” McClary said. “Now, it’s hard to find a quality [advisor] that doesn’t use ETFs to some capacity.”
4. SEC rule made ETF launches easier
The Securities and Exchange Commission issued a rule in 2019 that made it easier for asset managers to launch ETFs and streamlined portfolio management for active managers, Armour said.
As a result, financial firms have been debuting more ETFs than mutual funds, increasing the number of funds available for investors.
In 2023, for example, fund companies issued 578 new ETFs, relative to 182 mutual funds, according to Morningstar.
Potential drawbacks of ETFs
Stock traders on the floor of the New York Stock Exchange.
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That said, ETFs have drawbacks while some of their stated benefits may be oversold.
For example, while most ETFs disclose their holdings every day (unlike mutual funds), such transparency “adds little value” for investors, who have little need to check underlying securities frequently, Armour wrote.
Additionally, ETFs trade throughout the day like a stock, while investors’ orders for mutual funds are only priced once a day, when the market closes.
But the ability to trade ETFs like a stock is “not much of an advantage for most investors,” Armour said. That’s because frequent buying and selling is generally a “losing proposition” for the average investor, he said.
Certain ETFs may also be tough to trade, a situation that could add costs for investors due to wide differences between the asking price and the bidding price, experts said. By contrast, mutual funds always trade without such “bid/ask spreads,” Iachini said.
Unlike mutual funds, ETFs can’t close to new investors, Armour said. If the fund gets too big, it can sometimes be difficult for certain actively managed ETFs to execute their investment strategy, he said.
Under the Biden administration, the U.S. Department of Education made regular announcements that it was forgiving student debt for thousands of people under various relief programs and repayment plans.
“You have the administration trying to limit PSLF credits, and clear attacks on the income-based repayment with forgiveness options,” said Malissa Giles, a consumer bankruptcy attorney in Virginia.
The White House did not respond to CNBC’s request for comment.
Here’s what to know about the current status of federal student loan forgiveness opportunities.
Forgiveness chances narrow on repayment plans
The Biden administration’s new student loan repayment plan,Saving on a Valuable Education, or SAVE, isn’t expected to survive under Trump, experts say. A U.S. appeals court already blocked the plan in February after a GOP-led challenge to the program.
SAVE came with two key provisions that lawsuits targeted: It had lower monthly payments than any other federal student loan repayment plan, and it led to quicker debt erasure for those with small balances.
“I personally think you will see SAVE dismantled through the courts or the administration,” Giles said.
But the Education Department under Trump is now arguing that the ruling by the 8th U.S. Circuit Court of Appeals required it to end the loan forgiveness under repayment plans beyond SAVE. As a result, the Pay As You Earn and Income-Contingent Repayment options no longer wipe debt away after a certain number of years.
There’s some good news: At least one repayment plan still leads to debt erasure, said higher education expert Mark Kantrowitz. That plan is called Income-Based Repayment.
If a borrower enrolled in ICR or PAYE eventually switches to IBR, their previous payments made under the other plans will count toward loan forgiveness under IBR, as long as they meet the IBR’s other requirements, Kantrowitz said. (Some borrowers may opt to take that strategy if they have a lower monthly bill under ICR or PAYE than they would on IBR.)
Public Service Loan Forgiveness remains
Despite Trump‘s executive order in March aimed at limiting eligibility for Public Service Loan Forgiveness, the program remains intact. Any changes to the program would likely take months or longer to materialize, and may even need congressional approval, experts say.
PSLF, which President George W. Bush signed into law in 2007, allows many not-for-profit and government employees to have their federal student loans canceled after 10 years of payments.
What’s more, any changes to PSLF can’t be retroactive, consumer advocates say. That means that if you are currently working for or previously worked for an organization that the Trump administration later excludes from the program, you’ll still get credit for that time — at least up until when the changes go into effect.
For now, the language in the president’s executive order was fairly vague. As a result, it remains unclear exactly which organizations will no longer be considered a qualifying employer under PSLF, experts said.
However, in his first few months in office, Trump has targeted immigrants, transgender and nonbinary people and those who work to increase diversity across the private and public sector. Many nonprofits work in these spaces, providing legal support or doing advocacy and education work.
For now, those pursuing PSLF should print out a copy of their payment history on StudentAid.gov or request one from their loan servicer. They should keep a record of the number of qualifying payments they’ve made so far, said Jessica Thompson, senior vice president of The Institute for College Access & Success.
“We urge borrowers to save all documentation of their payments, payment counts, and employer certifications to ensure they have any information that might be useful in the future,” Thompson said.
Other loan cancellation opportunities to consider
Federal student loan borrowers also remain entitled to a number of other student loan forgiveness opportunities.
The Teacher Loan Forgiveness program offers up to $17,500 in loan cancellation to those who’ve worked full time for “complete and consecutive academic years in a low-income school or educational service agency,” among other requirements, according to the Education Department.
(One thing to note: This program can’t be combined with PSLF, and so borrowers should decide which avenue makes the most sense for them.)
In less common circumstances, you may be eligible for a full discharge of your federal student loans under Borrower Defense if your school closed while you were enrolled or if you were misled by your school or didn’t receive a quality education.
Borrowers may qualify for a Total and Permanent Disability discharge if they suffer from a mental or physical disability that is severe and permanent and prevents them from working. Proof of the disability can come from a doctor, the Social Security Administration or the Department of Veterans Affairs.
With the federal government rolling back student loan forgiveness measures, experts also recommend that borrowers explore the many state-level relief programs available. The Institute of Student Loan Advisors has a database of student loan forgiveness programs by state.
Many Americans are worried they’ll run out of money in retirement.
In fact, a new survey from Allianz Life finds that 64% Americans worry more about running out of money than they do about dying. Among the reasons cited for those fears include high inflation, Social Security benefits not providing enough support and high taxes.
The fear of running out of money was most prominent for Gen Xers who are approaching retirement. However, a majority of millennials and baby boomers also said they worry about their money lasting, according to the online survey of 1,000 individuals conducted between January and February.
Separately, a new Employee Benefit Research Institute report finds most retirees say they are living the lifestyle they envisioned and are able to spend money within reason. Yet more than half of those surveyed agreed at least somewhat that they spend less because of worries they will run out of money, according to the survey of more than 2,700 individuals conducted between January and February.
Meanwhile, a Northwestern Mutual survey reported that 51% of Americans think it’s “somewhat or very likely” they will outlive their savings. The survey polled 4,626 U.S. adults aged 18 and older in January.
Since those studies were conducted, new tariff policies have caused disturbance in the stock markets and prompted speculation that inflation may increase. Meanwhile, new leadership at the Social Security Administration has prompted fears about the continuity of benefits. Those headlines may negatively affect retirement confidence, experts say.
With employers now providing a 401(k) plan and other savings plans versus pensions, it is largely up to workers to manage how much they save heading into retirement and how much they spend once they reach that life stage. That responsibility can also lead to worries of running out of money in the future, experts say.
How to manage the ‘fear of outliving your resources’
Because of the unique risks every individual or couple faces when planning for retirement, the best approach is typically to transfer some of that burden to a third party, said David Blanchett, head of retirement research at PGIM DC Solutions.
Creating a guaranteed lifetime income stream that covers essential expenses can help reduce the financial impact of any events that require retirees to cut back on spending, Blanchett explained.
That should first start with delaying Social Security benefits, he said. While eligible retirees can claim benefits as early as 62, holding off up until age 70 can provide the biggest monthly benefits. Social Security is also unique in that it provides annual adjustments for inflation.
Next, retirees may want to consider buying a lifetime income annuity that can help amplify the monthly income they can expect. Admittedly, those products can be complicated to understand. Therefore Blanchett recommends starting out by comparing very basic products like single premium immediate annuities that are easier to compare.
“Unless you do those things, you just can’t get rid of that fear of outliving your resources,” Blanchett said.
Without a guaranteed income stream, retirees bear all of the financial risk themselves, he said.
“Retirement could last 10 years; it could last 40 years,” Blanchett said. “You just don’t know how long it’s going to be.”
Among retirees, there has been some hesitation to buy annuities, said Craig Copeland, EBRI’s director of wealth benefits research. Such a purchase requires parting with a lump sum of money in exchange for the promise of a guaranteed income stream.
“We see great increase in interest, but we aren’t seeing upticks in take up yet,” Copeland said. “I do think that’s going to start to change.”
What can help boost retirement confidence
To effectively plan for retirement, it helps to seek professional financial assistance, experts say.
Meanwhile, few people have a plan of their own for how they may live on the assets they’ve worked hard to accumulate, according to Kelly LaVigne, vice president of consumer insights at Allianz Life.
“This is something that you should not plan on doing on your own,” LaVigne said.
While the survey from Northwestern Mutual separately found individuals think they need $1.26 million to retire comfortably, the real number individuals need is based on their personal situation, said Kyle Menke, founder and wealth management advisor at Menke Financial, a Northwestern Mutual company.
In thinking about how life will look in 30 years, there are a variety of things to consider, Menke said. This includes stock market returns, taxes, inflation and medical expenses, he said.
Even people who have enough money for retirement often don’t feel confident in their ability to manage all of those factors on their own, he said. Financial advisors have the ability to run different simulations and stress test a plan, which can help give retirees and aspiring retirees the confidence they’re lacking.
“I think that’s where the biggest gap is,” said Menke, referring to the confidence Americans are lacking without a plan.
Shipping containers at the Port of Seattle on April 16, 2025.
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Tariffs levied by President Donald Trump during his second term would hurt the poorest U.S. households more than the richest over the short term, according to a new analysis.
Tariffs are a tax that importers pay on foreign goods. Economists expect consumers to shoulder at least some of that tax burden in the form of higher prices, depending on how businesses pass along the costs.
In 2026, taxes for the poorest 20% of households would rise about four times more than those in the top 1%, if the current tariff policies were to stay in place. Those were findings according to an analysis published Wednesday by the Institute on Taxation and Economic Policy.
For the bottom 20% of households — who will have incomes of less than $29,000 in 2026 — the tariffs will impose a tax increase equal to 6.2% of their income that year, on average, according to ITEP’s analysis.
Meanwhile, those in the top 1%, with an income of more than $915,000 a year, would see their taxes rise 1.7% relative to their income, on average, ITEP found.
Economists analyze the financial impact of policy relative to household income because it illustrates how their disposable income — and quality of life — are impacted.
Taxes by ‘another name’
“Tariffs are just taxes on Americans by another name,” researchers at the Heritage Foundation, a conservative think tank, wrote in 2017, during Trump’s first term.
“[They] raise the price of food and clothing, which make up a larger share of a low-income household’s budget,” they wrote, adding: “In fact, cutting tariffs could be the biggest tax cut low-income families will ever see.”
A recent analysis by the Yale Budget Lab also found that Trump tariffs are a “regressive” policy, meaning they hurt those at the bottom more than the top.
The short-term tax burden of tariffs is about 2.5 times greater for those at the bottom, the Yale analysis found. It examined tariffs and retaliatory trade measures through April 15.
“Lower income consumers are going to get pinched more by tariffs,” said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist at the White House Council of Economic Advisers during the Biden administration.
Treasury Secretary Scott Bessent has said tariffs may lead to a “one-time price adjustment” for consumers. But he also coupled trade policy as part of a broader White House economic agenda that includes a forthcoming legislative package of tax cuts.
“We’re also working on the tax bill and for working Americans, I believe that the reduction in taxes is going to be substantially more,” Bessent said April 2.
It’s also unclear how current tariff policy might change. The White House has signaled trade deals with certain nations and exemptions for certain products may be in the offing.
Trump has imposed a 10% tariff on imports from most U.S. trading partners. Mexico and Canada face 25% levies on a tranche of goods, and many Chinese goods face import duties of 145%. Specific products also face tariffs, like a 25% duty on aluminum, steel and automobiles.