How to Defer Taxes Like the Rich and Famous

In this episode of ETF Spotlight, I speak with Meb Faber, co-founder and CIO of Cambria Investment Management. We discuss the 351 ETF exchange, which helps investors defer capital gains on legacy stock positions with large appreciations, and the importance of global diversification.

ETFs have surged in popularity for many reasons, including transparency, intraday liquidity, low fees, and tax efficiency. Now there is one more reason to love them, especially if you have stocks in a taxable account that have risen significantly.

US large-cap stocks have been in an incredible bull run for more than a decade. The S&P 500 ETF SPY is up almost 315%, while the Nasdaq 100 ETF QQQ has returned close to 540% over the past 10 years.

And if you were wise or lucky enough to invest in shares of Nvidia NVDA, your gains would be over 30,000% during this period.

If you want to diversify, selling those appreciated holdings and moving into an ETF would normally trigger a hefty tax bill. The good news is that investors can now use a 351 ETF conversion to turn their stock portfolio into a low-cost, broadly diversified ETF without realizing capital gains taxes.

There are, however, certain diversification requirements on contributions, and taxes are still due eventually when investors sell their ETF shares.

Cambria’s Global Equal Weight ETF GEW recently joined the Tax Aware ETF TAX and the Endowment Style ETF ENDW following a 351 ETF exchange. Another such fund is set to make its debut in December.

Meb has long been a believer in international diversification. This year, in fact, international stocks have performed well after many years of underperformance. Take a look at the Cambria Global Value ETF GVAL and the Foreign Shareholder Yield ETF FYLD.

Tune in to the podcast to learn more. Make sure to be on the lookout for the next edition of ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

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This article originally published on Zacks Investment Research (zacks.com).

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