Usually, stocks that feature low volatility tend to yield a comparatively higher return when assessed against the risks taken. This is what is known as the low-volatility factor. For many years, an overwhelming majority of investors have been risk-averse and conservative. This has meant that they have always been looking for low-risk high-return investments while shunning high-risk investment channels.
Shares with low volatility have been perceived to carry low returns since they are associated with low risks. On the other hand, investors considering these types of portfolios generally overestimate their ability to project the future. Therefore, investors need to consider the factor strategy by way of index tracking. Under this strategic investment plan, investors are able to identify low-volatility ETFs from which they can select their investment.
How to Tell If Your Investment is Doing Fine
Generally, the key to investing in ETF is measuring the outcomes. For instance, you want to know how much your portfolio has gained or lost over a particular period. But what’s more, you need to measure the performance of the stock against a standard benchmark. This is particularly important since measuring the returns in themselves is not sufficient to inform an investor of how best or worst the investment has performed. Therefore, a benchmark helps to tell how an investment portfolio stacks up. This is perhaps the best way of tracking the progress your portfolio is making over time. When working with a portfolio manager that manages your investments, benchmarks can help you track their performance and help you compare them against their peers. It is important to choose an investment that matches your risk profile in order to clearly inform you on whether or not your high dividend low volatility ETF is underperforming or over-performing.
How are Dividends from ETFs Reported?
The Internal Revenue Service (IRS) requires that brokerage firms or financial institutions holding exchange-traded funds (ETFs) report annually all dividends. A special firm 1088-DIV, Dividends and Distributions is usually used to report these dividends.
Net investment income (NII) tax
High-income investors may have their dividends subjected to a Medicare tax of 3.8%, which is separate from other income tax that is paid on dividends. This is applicable to the net investment income (NII). This is the reason it is called NII tax.
Conclusion
Those investors who end up with high net incomes from ETFs may be required to pay quarterly estimated taxes may vary depending on the incomes. You can liaise with your tax expert to assess your income for purposes of determining your possible tax. Your tax advisor will also ensure your low volatility ETF are reported properly when filing tax returns.
