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Social Security and Medicare face pressures to support a large baby boomer population as they retire.
In a recent CNBC appearance, Republican vice presidential candidate JD Vance said tackling what he called “massive” benefit fraud by undocumented immigrants should be a high priority.
But addressing the programs’ looming trust fund depletion dates is a bigger problem, one expert says.

Republican vice presidential nominee, U.S. Sen. JD Vance speaks at a campaign rally at Radford University on July 22, 2024 in Radford, Virginia.
Alex Wong | Getty Images News | Getty Images

Many voters ages 50 and up say two issues — Social Security and Medicare — could decide how they cast their ballots this November.
The presidential candidate who wins on Nov. 5 — either former President Donald Trump or Vice President Kamala Harris — may be tasked with restoring solvency to those programs as they face looming trust fund depletion dates.

Republican vice presidential candidate JD Vance, in a Sept. 12 interview on CNBC’s “Squawk Box,” said that first addressing another issue, immigration, could help the programs’ funding woes.
Vance said Social Security and Medicare are facing a “massive fraud problem” because of undocumented immigrants who are collecting benefits, citing what he said were incidents of fraud related to him by some of his constituents and friends.
“Before we start talking about doing anything to the benefits for Americans who have earned them, let’s deal with the illegal alien fraud in our Social Security and Medicare system,” Vance said. “I think that costs us a lot of money.”

It’s not the first time the Trump-Vance campaign has suggested immigration is hurting the programs that millions of retirees rely on for monthly benefit checks and health-care coverage.
Trump in March said on social media platform Truth Social that Democrats are “killing Social Security and Medicare by allowing the invasion of the migrants.”

Meanwhile, Harris has talked about creating an “earned pathway to citizenship,” which may encourage immigrants to work and contribute to the programs. The Harris campaign did not provide CNBC more details on those plans.

Who is eligible to benefit from Social Security?

The Social Security Administration assigns a unique Social Security number to each individual who is either a U.S. citizen, is lawfully admitted to the country as a permanent resident, is lawfully admitted on a temporary basis with Department of Homeland Security authorization to work, or has a valid non-work reason for needing a Social Security number, according to the agency.
A Social Security number is required for most jobs in the U.S., and employers are typically required to deduct payroll taxes from each employee to fund programs including Social Security and Medicare.
Over many years of work, the employee usually contributes a sufficient amount to be eligible to claim monthly Social Security checks and Medicare benefits when they retire or become disabled.
Documented immigrants — such as those with permanent status and dual intent temporary visas — pay the payroll taxes that contribute to Social Security and Medicare, according to Tara Watson, a senior fellow at The Brookings Institution and author of the book “The Border Within: The Economics of Immigration in an Age of Fear.”
Generally, undocumented immigrants are not eligible for Social Security or Medicare benefits, Watson said, but they may pay in to the programs anyway.
Some undocumented immigrants may use false Social Security numbers to work in jobs that require payroll tax contributions to Social Security and Medicare, and therefore they unofficially contribute to those programs, she said. Others, such as seasonal workers, may not pay payroll taxes.
Many long-term immigrants do receive benefits after contributing to the programs and earning eligibility, Watson said. Immigrants may eventually qualify for Social Security benefits if they are present in the U.S. lawfully and earn the required credits by working and contributing to the program, according to the American Academy of Actuaries.
Undocumented immigrants contributed $33.9 billion in federal social insurance taxes in 2022 toward Social Security, Medicare and unemployment insurance, according to the Institute on Taxation and Economic Policy.
Yet because of their immigration status, those workers are barred from accessing those benefits.

How widespread is Social Security fraud?

There are two common types of Social Security fraud involving immigration: When people who aren’t eligible for a Social Security number either steal one or create a false one so they can try to get a job in the U.S., and when people who aren’t eligible for Social Security or Medicare benefits use a fraudulent name or Social Security number to claim benefit payments.
Committing these kinds of fraud isn’t easy. 
But it is possible for some people, including some undocumented immigrants, to carry it out.
Stealing benefits can be difficult, since it requires tapping into someone’s Social Security account and changing their bank account information to access the money, according to Andrew Biggs, a senior fellow at the American Enterprise Institute and former principal deputy commissioner at the Social Security Administration.
After the Social Security Administration started allowing individuals to change their bank deposit information through their online accounts, the agency and the Office of Inspector General began receiving complaints of unauthorized changes, Jeffrey Brown, deputy assistant inspector general at the Social Security Administration Office of the Inspector General, told the House Ways and Means Committee in 2023.
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Audits found $33.5 million in benefits for 20,878 beneficiaries was redirected through unauthorized direct deposit changes between January 2013 and May 2018, according to Brown. However, another $23.9 million for 19,662 beneficiaries was prevented from misdirection by the agency before payments were made.
The investigation, from a 2019 report, did not implicate undocumented immigrants in that activity.
“Our audits found fraudsters may steal identities to work or to claim earnings-related benefits,” Brown said in his written testimony, which did not give demographic information on those committing the fraud.
There have been cases of undocumented immigrants found to be misusing Social Security numbers to fraudulently access benefits.
“There are certainly some immigrants who are getting benefits when they shouldn’t be, but I think it’s a relatively small group of them,” Watson said.
“This is not a problem that I’ve heard specifically that, as [Vance] says, is widespread,” Biggs said, referring to Vance’s comments about social services fraud by undocumented immigrants.

What happens to unclaimed earnings?

The type of fraud in which Social Security numbers can be misused for work purposes may be more common, experts say.
When someone is working using a Social Security number that isn’t theirs, their earnings may be credited to the person whose name matches that number in the agency’s records.
Alternatively, they may be credited to the Social Security Administration’s earnings suspense file.
The earnings suspense file is an electronic holding file for wage items where names and Social Security numbers on Form W-2s do not match the Social Security Administration’s records, an agency spokesperson said via email.
The wage records stay in that file until they can be verified and matched to a worker’s record. Despite the wage records’ unidentified status, the program’s trust funds have received revenues for the wage items placed in the suspense file, the spokesperson said.
A 2023 report from the Social Security Administration Office of the Inspector General showed the earnings suspense file had accumulated $2.15 trillion in wages for tax years 1937 through 2022.
The earnings suspense file includes undocumented immigrants, among other people, Watson said.
She said the existence of the earnings suspense file “gives you an indication that people are putting into the system and not claiming from the system.”

Immigrants in the labor market ‘very much a positive’

Immigration overall is a net positive to Social Security and Medicare, experts say.
Both programs rely on funding from payroll taxes. The experts say that more immigrants means more workers who contribute to both Social Security and Medicare through their paychecks.
“Immigration, in general, has a very positive role,” said Sam Gutterman, chairperson of the American Academy of Actuaries’ Social Security committee.
Neither the Social Security Administration nor the Department of Health and Human Services, which oversees Medicare, provided recent data on the effect of undocumented immigrants on their programs.
When asked about Vance’s statement that undocumented workers are draining Medicare and Social Security, HHS spokesperson Renata Miller said: “These claims are false and they serve as a distraction from the health care concerns that everyday Americans care about. HHS will continue working to lower health care costs so that patients can fill a prescription without rationing pills or going into medical debt.”
The Social Security Administration in an email explained that there are strict rules about who can legally receive benefits and Social Security numbers.
“The Social Security Act does not permit payment of benefits to noncitizens residing in the U.S. if they’re not lawfully present here,” a Social Security spokesperson said. “In order to get a Social Security number for work, by law you need to be a U.S. citizen or have [Department of Homeland Security] authorization. SSA has stringent evidentiary requirements to confirm the authenticity of documents and prevent issuance of numbers to ineligible individuals.”

In a 2013 report, the Social Security Administration said it is difficult to precisely identify the total amount of taxes paid and benefits that may have been received by unauthorized workers.
In that report, the office of the program’s chief actuary said undocumented immigrants paid as much as $13 billion in payroll taxes to the program’s trust funds in 2010, while about $1 billion in benefit payments were attributed to unauthorized work. That resulted in a contribution of roughly $12 billion to the program’s cash flow that year, according to the agency.
“We estimate that earnings by unauthorized immigrants result in a net positive effect on Social Security financial status generally,” the office of SSA’s chief actuary said.
“We estimate that future years will experience a continuation of this positive impact on the trust funds,” it wrote.
More recently, the Social Security Administration has said immigration tends to be beneficial for the program because those new entrants to the country tend to be working age.
“When they come to the country, they tend to come here for economic opportunity and enter the labor force, and that’s very much a positive,” Stephen Goss, chief actuary of the Social Security Administration, said in testimony before the House Budget Committee in June.
“That actually helps us with having more revenue coming in,” Goss said.
Those workers may eventually work the length of time necessary to qualify for benefits, Goss said.
However, some immigrants pay into the program and never collect benefits, he explained.
And if they have children, that helps to make up for the country’s low birth rate, which also benefits the program, Goss added.

Looming depletion dates are the more pressing issue

In a new report, the American Academy of Actuaries found immigration may “significantly enhance the future financial condition of Social Security, especially in the long term.” The report says immigration may help improve the worker-to-beneficiary ratio and slightly delay the depletion of the program’s trust funds.
However, immigration is “not a silver bullet to ‘solve’ 100% of Social Security’s financial problems,” according to the research, which analyzed the Social Security Administration’s latest annual trustees report.
Both Social Security and Medicare face pressures as the large baby boomer generation retires and taps the programs for benefits.
Absent action from Congress, the trust fund Social Security relies on to pay for retirement benefits is due to run out in 2033, when 79% of benefits will be payable, according to projections from the program’s trustees.
Medicare’s hospital insurance trust fund, also known as Part A, is projected to last until 2036, when 89% of benefits will be payable.
Biggs said the presidential campaigns should focus on policies to address those looming depletion dates that will prompt across-the-board benefit cuts, rather than fraud by undocumented immigrants, which is a much smaller issue for the programs.
Focusing on the undocumented immigrant angle first is a “total sideshow” when it comes to the larger Social Security and Medicare funding issues, Biggs said.
“I think he [Vance] is using it as a deflection because they don’t want to talk about fixing Social Security,” Biggs said. More

Federal spending on children has seen a “steep decline” since a 2021 pandemic peak, according to new research from the Urban Institute.
In 2024, expenditures on children are expected to level off, with a projected decline of about $230 per child from the previous year, the research found.
Next year, Congress may be poised to again consider changes to the child tax credit when its current terms expire.

Catherine Delahaye | Digitalvision | Getty Images

Federal spending on children climbed to a peak of $11,690 per child in 2021 in response to the Covid-19 pandemic.
Since then, there has been a “steep decline” in those expenditures, which fell to $10,190 per child in 2022 and then to $8,990 per child in 2023, adjusted for inflation, according to new research from the Urban Institute, a Washington, D.C., think tank focused on economic and social policy research.

In 2024, that spending is expected to level off to $8,760 per child — a decline of about $230 per child from the previous year, the research found.
Covid relief — through federal legislation as well as state-level initiatives — helped provide “unprecedented” new funding in 2020 and 2021 that significantly improved conditions for children and their families, according to the report. Those efforts included tax provisions, social services, training and housing programs.
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Those pandemic-era changes — which were largely temporary — had a “big and immediate” effect on poverty, according to Heather Hahn, associate vice president at the Urban Institute and a co-author of the report.
“For children, we saw poverty just plummet because they had more money,” Hahn said.

In 2021, child poverty fell to 5.2%, down from 12.6% in 2019. The expiration of the aid drove child poverty back up to 12.4% in 2022.
Tax expenditures represent the largest drop in federal spending on children between 2022 and 2023, while there were also sharp declines in spending on nutrition and more modest changes in education funding, according to the Urban Institute.

Covid federal tax expansions were largest in 2021

Pandemic-era tax expansions were the largest in 2021 and included direct payments to families.
Three rounds of stimulus check payments deployed by the federal government between March 2020 and March 2021 included larger maximum payments for families with children.
The first stimulus payments provided an additional $500 per dependent under age 17. The second round of payments provided $600 per dependent under 17. And the third, most generous payments provided $1,400 per dependent, this time including those ages 17 and 18. To qualify, certain income thresholds and other restrictions applied.

Federal lawmakers also temporarily put in place a more generous child tax credit for 2021 with maximums of $3,000 per child and $3,600 per child under age six — up from $2,000 per child.
The child tax credit was also made non-refundable, allowing families with little to no income to still access the full sums. As with the stimulus checks, families needed to meet income and other requirements to qualify.
By 2023, the stimulus check money had largely been paid out and the child tax credit expenditures had fallen back below pre-pandemic levels, according to the Urban Institute.

Child tax credit ‘a central part of the discussion’

Families may receive even less money when the Tax Cuts and Jobs Act expires in 2025, barring action by Congress before then. At that point, the current child tax credit of up to $2,000 per child under age 17 is poised to fall to $1,000 per child under age 17.
Lawmakers may again consider making the child tax credit more generous.
“The long-term future of the child tax credit and this broader support for families and children is going to be a pretty central part of the discussion next year,” Garrett Watson, senior policy analyst at the Tax Foundation said of the upcoming federal tax policy deadline Congress faces.
Along with the expanded child tax credit, lawmakers are also poised to look at other changes to the tax code that are set to expire, particularly the expanded standard deduction and repeal of the personal exemption. Taken together, those three changes net out to be revenue neutral, and therefore are interrelated, Watson said.
“Generally speaking, there is a bipartisan interest in at least maintaining current policy, meaning the child tax credit that was established and expanded in 2017,” Watson said.
However, there is no consensus on what changes should be included to that credit in the future, he said.

As part of her presidential campaign, Vice President Kamala Harris has suggested restoring the expanded child tax credit of up to $3,600 and providing $6,000 for families with newborn children. Meanwhile, Republican vice-presidential candidate JD Vance has said he wants to raise the child tax credit to $5,000.
Generally, federal spending on children will have to compete with other priorities.
The Urban Institute projects that by 2034 all categories of federal expenditures on children as a share of gross domestic product will decline below current levels. That’s as other areas, like interest payments on the national debt and outlays to Social Security, Medicare and Medicaid, are expected to take up a larger share of federal spending by that year.
Traditionally, states and localities have provided the most spending for children, primarily through education, Hahn said. The federal government temporarily had a larger role in spending on children during the pandemic, she said. More

As a result of a recent class-action settlement, home sellers are no longer obligated to offer commission for both the buyer and seller agents.
Some agents are talking to home sellers about the benefits of offering commissions for buyer’s agents.
Homebuyers may need to take the time to understand the agreement forms with potential agents.

Azmanl | E+ | Getty Images

New rules on buying and selling homes are in play, now that a settlement from a class-action lawsuit has taken effect.
In March, the National Association of Realtors agreed to a $418 million settlement in an antitrust lawsuit where a federal jury found the organization and several large real-estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate.

In a statement at the time of the verdict, the NAR denied wrongdoing.
The settlement took effect on August 17.
Prior to the settlement, the NAR’s multiple listing service, or MLS, used at a local level across areas in the U.S., facilitated the compensation rates for both a buyer’s and seller’s agents. At the time of listing a property, the home seller negotiated with the listing agent what the compensation would be for a buyer’s agent, which appeared on the MLS. However, if a seller was unaware they could negotiate, they were typically locked into paying the listed brokerage fee.
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Now, as a result of the settlement, the commission rates are officially removed from the MLS and home sellers are no longer obligated to offer commission for both the buyer and seller agents.

“Now, the buyer chooses how much the buyer’s agent makes, the sellers choose how much the seller’s agents make,” Glenn Kelman, CEO of online real estate brokerage firm Redfin, told CNBC. “It’s a new competitive ballgame.”
Any confusion around the new practices among agents and consumers will likely be temporary, said Kerry Melcher, head of real estate at Opendoor. 
“Real estate agents are good at moving the market,” she said. “That’s their job. So, I don’t believe that this is going to slow down the market.”
Here’s what to know.

What’s happening with buyer and listing agents

Potential homebuyers might come across inconsistencies in the market as real estate agents grow accustomed to the new rules. 
Before August 17, if you called five buyer agents for the same inquiry related to buying a home, “four out of five times,” you would get the same answer, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida. 
“Now, maybe two out of five times, you’re going to get the same answer,” Cobreiro said.
That’s because real estate agents are receiving different instructions from their brokerage firm on how to implement the NAR settlement changes, and it’s translating into confusion among consumers, she said. 

Meanwhile on the listing side, real estate agents are educating home sellers on the benefits of offering commission to the buyer’s agent even if it’s not a set amount or percentage, Cobreiro explained. 
For instance, offering a commission can create more competition for agents wanting to show their property, which increases the sales price, she said. 
“Explaining those benefits of still offering commission despite the fact that the commission is not mandatory is part of the job that now I’m seeing listing agents do,” said Cobreiro. 

What to know about buyer-broker agreements

The buyer-broker agreement is a contract between a real estate agent and a homebuyer that specifies the terms of their working relationship, said Cobreiro — the goal of which is to identify a house for the buyer to purchase. 
If the client buys a property that meets the criteria in the agreement within the specified timeframe, the agent is entitled to the commission for that purchase, Cobreiro said.
“The purpose of this form is telling the buyers they are responsible for their own commission on the buyer’s side,” she said. 

If the seller does not offer commission, the buyer would be responsible for whatever commission was listed on that buyer broker agreement, Cobreiro said.
Buyers must get comfortable with what buyer-broker agreement forms look like and be prepared to ask questions about the language and terms, Melcher said. 
“The forms are designed to be read by buyers and for buyers to understand them,” she said.
—CNBC associate producer Ryan Baker contributed to this story. More

ETF Strategist

If you’re bracing for year-end mutual fund distributions, swapping assets for exchange-traded funds could sidestep the capital gains payout for 2024.
While selling profitable brokerage account funds triggers capital gains, the move could be tax-free if your income is low enough, experts say.  
You won’t incur taxes from selling mutual funds if you’re in the 0% long-term capital gains bracket, which applies to assets owned for more than one year.

Thomas Barwick | Stone | Getty Images

If you’re bracing for year-end mutual fund distributions, swapping assets for exchange-traded funds could sidestep the capital gains payout for 2024 and beyond.
Some mutual funds distribute yearly capital gains to shareholders, typically in November and December. By comparison, most ETFs don’t have an annual payout, which helps reduce ongoing taxes.

Typically, investors incur capital gains when trading profitable mutual funds for ETFs in a brokerage account. But some investors can sell without triggering taxes, experts say.
Depending on their income, certain investors can “capital gain harvest” — strategically selling profitable assets while in a lower tax bracket — to swap mutual funds for ETFs, said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

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Here’s a look at other stories offering insight on ETFs for investors.

With many tax breaks tied to adjusted gross income, experts recommend tracking earnings, including capital gains, throughout the year.
Eliminating year-end mutual fund distributions can make annual tax projections “much more accurate,” according to Lucas.
“It’s really nice to take the magnitude of that variable out,” he said.

The 0% capital gains bracket

You won’t incur taxes from selling mutual funds if you’re in the 0% long-term capital gains bracket, which applies to assets owned for more than one year.
For 2024, you’ll fall into the 0% bracket with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly.
Taxable income is significantly lower than your total or “gross” income because the calculation subtracts the greater of the standard or itemized deductions from your adjusted gross income.

Trading mutual funds for ETFs in the 0% bracket “is a great idea if everything else lines up and you don’t have a lot of other income,” said CFP JoAnn May, the principal and co-founder at Forest Asset Management in Riverside, Illinois. She is also a certified public accountant.
But “you’ve got to watch [your taxable income] closely,” she said.
Of course, you’ll need to add gains from mutual fund sales when calculating your taxable income for the year.

Sell before the mutual fund’s record date

If you plan to swap mutual funds for ETFs, you need to sell before the mutual fund’s record date, or “date of record.” Otherwise, you’ll still receive the distribution, even if you sell before the payable date.
Plus, mutual funds typically release estimates of year-end payouts before the record date, so you can see approximately how much you’ll receive, May said. More

ETF Strategist

The first exchange-traded fund was launched in the early 1990s.
ETFs have steadily gained market share relative to mutual funds.
Tax savings and low costs are among the primary benefits of ETFs for investors, experts said. But mutual funds may still make more sense in certain cases.

Moyo Studio | E+ | Getty Images

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’

Svetikd | E+ | Getty Images

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.
On a more micro level, many ETF investors can sidestep the fund-level capital gains taxes incurred by many investors who own mutual fund shares, experts said.

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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.
ETFs accounted for 80% of net money into index stock funds in the first half of 2024, Morningstar found.
“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

Nitat Termmee | Moment | Getty Images

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.
Michael M. Santiago | Getty Images News | Getty Images

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. More

Traders work on the floor of the New York Stock Exchange (NYSE) on September 19, 2024, in New York City. 
Spencer Platt | Getty Images

Stocks @ Night is a daily newsletter delivered after hours, giving you a first look at tomorrow and last look at today. Sign up for free to receive it directly in your inbox.
Here’s what CNBC TV’s producers were watching as stocks capped a winning September and what’s on the radar for the next session.

The port strike

It’s very possible port workers in the Gulf and East Coasts will go on strike.
CNBC TV’s Frank Holland and Lori Ann LaRocco have been covering the development and will continue on Tuesday morning. LaRocco’s analysis is also CNBC.com’s most-read story of the day. 
She is reporting that shipping company Maersk is one of the stocks to watch closely: If there’s a work stoppage, it could mean the company will charge higher rates. The stock rose more than 3% on Monday. It is up about 13% in the last month. The stock is 19.5% from the 52-week high hit back in January.
Zim is the biggest shipping gainer in the last month. The stock is up 40% in a month, bolstered by better-than-expected quarterly numbers this summer. The company also declared a dividend.
Star Bulk Carriers is up roughly 11% in a month.
Golden Ocean is up about 9% in a month.
Euroseas is up nearly 8% in a month.

Stock chart icon

Star Bulk Carriers’ performance in the past month

Bring on Q4

We are keeping track of Wall Street’s top picks by the year and quarter.
Of the stocks labeled by analysts as a “top pick,” D.R. Horton was tops in the third quarter, up about 35%. Wells Fargo made the pick in late August. It is also on UBS’ list.
Toll Brothers was second, up around 34% in the quarter. This was another Wells Fargo call.
DoorDash is third, up 31% in the period. This is a Bernstein pick.
Fortinet was up 28% in Q3. Bank of America is behind this one.
Howmet Aerospace was up 29% in the period. This is also a call from Bank of America.
On the other end of the spectrum, Snap is down 35% in the third quarter.
Pinterest is down about 27% in the period.
CrowdStrike down 27%. This is admittedly unscientific, but I follow, track and list the calls as closely as I can.

Hungry for earnings

Lamb Weston reports before the bell. Shares of the potato processing company are down 23% in the past three months. The stock is 42% from the January high.
McCormick, the spice guys, report Tuesday before the bell. McCormick is up 16% in the past three months. The stock hit a high two weeks ago and has dropped 3.5% since then.
Cal-Maine Foods, the egg producer, is up 22% in three months. The stock is just off the 52-week high last week.

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Cal-Maine Foods’ performance over the past three months

Nike

Nike reports Tuesday after the bell. CNBC TV’s Sara Eisen will have the numbers and catch analysis all afternoon.
The stock is up about 17% over the past three months.
However, it is 29% below the 52-week high hit in December.
The new CEO Elliott Hill is set to take over in two weeks.

September and Q3 auto sales

CNBC TV’s Phil LeBeau will watch the numbers as the come in.
General Motors dropped 3.5% Monday. It is down about 10% in a month, and stands 11.4% from the July high.
Stellantis took a big hit Monday after warning of lower-than-expected sales across the globe. The stock fell more than 12% during the session. It is down 16% in a month, and it’s 55% from the March high.
Toyota dropped 2.3% on Monday. The stock is 30% from the March high, and shares are down 6% in a month
Honda fell 1.5% on Monday. It is down nearly 4% in a month and 16% from the March high.

Cannabis

There was a jump for a few stocks in the sector Monday after Democratic presidential nominee Kamala Harris said she’s in favor of legalizing marijuana use.
Canopy Growth picked up 5% Monday. It is now almost a $5 stock. It was above $500 a share at one point in 2021. It is 67% from the April high.
Trulieve picked up 3%. The stock is down 16% from the April high. 
Tilray was up 1% on Monday. It was once a $300 stock in 2018, but it closed Monday at $1.76. More

Establishing a Roth individual retirement account for youngsters is a powerful way to set them on the path to financial security.
Minors will need an adult to help them open a Roth IRA.
There’s no minimum age requirement for contributing to a Roth IRA; if a child can earn money, they can have a Roth IRA. 

Jasondoiy | E+ | Getty Images

As a financial advisor mom of three kids, I know well the power of compounded interest and the value of early work experience and learning to save and invest for yourself. 
My kids — ages 15, 12 and 11 — have been tutoring, filing, shredding, sweeping, and even researching and creating infographics for friends and our own companies for a while.

This has not only helped them develop responsible work habits and meet deadlines around their usual school work and extracurricular activities, but it also gives them hands-on experience managing an income. It teaches them at an early age the value of saving for the future and prioritizing important goals such as retirement.

More from CNBC’s Advisor Council

For kids, that seems like eons away. But getting started early can offer tremendous advantages. Then, you might be wondering — like many of my clients do — what’s the best way to save for our kids?
I believe the answer is for them to save in their very own Roth individual retirement accounts.

How a Roth IRA for kids works

Yes, kids can have their own Roth IRA — and, just like for adults, the IRS rules are pretty straightforward. 
For 2024, the total contribution an individual under age 50 can make to any IRA account — whether Roth, traditional or some combination of the two — is $7,000. If someone’s earned income is less than that, they can contribute only up to the amount of income that they earned — no “gift money.”

While the child needs to have earned income to qualify for contributions, the money used to fund the Roth IRA can be contributed from someone else. This means the child can keep their earnings for immediate spending, while the Roth IRA is funded separately, helping them build a financial foundation without dipping into their own pockets.
Parents, grandparents or any generous relative or benefactor can set up a Roth IRA for a child. 
There’s no minimum age requirement for contributing to a Roth IRA; if a child can earn money, they can have a Roth IRA. 
But if the child is a minor — under age 18 in most states but under age 21 in some — a parent or guardian must open a custodial Roth IRA in the child’s name and manage the investments until the child reaches the age of majority. Although the custodian makes decisions on the account, the child is the beneficial owner, meaning the funds must be used for their benefit.

More about those income requirements: To contribute to a Roth IRA, the child must have earned income. This income could come from traditional employment, such as a part-time job, or from self-employment activities such as babysitting or lawn mowing. Money received from parents for chores or as an allowance does not count, nor do cash gifts. 
Most kids, at least the younger ones, are unlikely to earn the $7,000 maximum allowable annual contribution for 2024 and are limited to the total amount they earned during the year. 
Even if the child is not required to file an income tax return, the parent or other custodian must still keep careful records of the earnings that are used to contribute to the Roth. Self-employment income might be subject to additional taxes such as Medicare and Social Security. It’s wise to consult a tax professional to ensure compliance and maximize benefits.

Why I like the Roth IRA for youngsters

I think of the Roth IRA as the “golden egg” savings vehicle for young people because not only is the account tax-sheltered, it also has the benefit of liquidity.
A Roth can be treated like the long-term savings vehicle it is designed to be, but in case of an emergency, since kids have decades ahead of them before retirement, there are ways to access the contributions without penalties or other drawbacks. 
Establishing a Roth IRA for youngsters is a powerful way to set them on the path to financial security. By starting early, they can take full advantage of the benefits of tax-free growth, potentially amassing a significant retirement fund by the time they reach retirement age.
There are other advantages as well. Contributions are made with after-tax dollars, so withdrawals during retirement can be tax-free, provided certain conditions are met. This is particularly advantageous for children, who are likely in a low or zero tax bracket now, which allows them to grow their investments without the burden of taxes.

In addition, starting early allows the account to benefit from decades of compound interest, significantly growing the balance over time. For instance, if a 15-year-old contributes $2,000 annually until age 65, with an average annual return of 7%, the account could grow to nearly $1 million. 
Unlike traditional IRAs, contributions to a Roth can be withdrawn at any time without penalties or taxes, and under certain circumstances, even earnings can be withdrawn without penalties for a first-time home purchase, for example.
As another benefit, unlike traditional IRAs, Roth IRAs do not require withdrawals at a certain age, allowing the account to continue growing tax-free for as long as the owner chooses. This gives young people more control over their retirement funds and can be advantageous in managing their retirement income.
Furthermore, starting a Roth IRA can help young people learn about investing, saving and financial planning from an early age. The structure of a Roth IRA encourages a long-term outlook on finances, helping young people build a secure financial future.
— By Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Partners. She is also a member of the CNBC Financial Advisor Council. More

The Target Corp. flagship store in Edina, Minnesota, US, on Thursday, Sept. 5, 2024. 
Ben Brewer | Bloomberg | Getty Images

The Federal Reserve recently cut interest rates by 50 basis points, setting a favorable backdrop for dividend-paying stocks.
Wall Street analysts’ recommendations and in-depth analysis can help investors choose dividend stocks that can enhance total returns with passive income and stock price appreciation.

Here are three dividend stocks, highlighted by Wall Street’s top pros on TipRanks, a platform that ranks analysts based on their past performance.
Northern Oil and Gas
This week’s first dividend stock is Northern Oil and Gas (NOG), a non-operated, upstream energy asset owner. It acquires minority interests in assets across multiple basins operated by leading operators.
In August, NOG announced a dividend of 42 cents per share, payable on Oct. 31. This dividend marked an 11% year-over-year increase. NOG offers a dividend yield of 4.8%.
Recently, Mizuho analyst William Janela initiated a buy rating on NOG stock with a price target of $47. He thinks that the combination of NOG’s extensive scale, diversification and a growing shift toward co-purchase deals has “created a unique business model, preserving the benefits of non-operatorship while mitigating some of the typical drawbacks.”
Janela also highlighted other advantages like higher cash operating margins and a solid M&A track record, which make NOG a compelling investment. He pointed out that the company offers attractive cash returns via its above-average base dividend yield and growing share buybacks.

Coming to the debate on whether NOG’s non-operator business is attractive compared to operator exploration and production players, Janela contends that NOG’s differentiated scale and diversification across major U.S. basins and operators give it capital flexibility. Such flexibility supports NOG’s active investment approach, defying the historical view that non-operators are passive investors/vehicles.
Janela ranks No. 567 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 53% of the time, delivering an average return of 22.6%. (See NOG Ownership Structure on TipRanks) 
Darden Restaurants
The next dividend stock is Darden Restaurants (DRI). The company recently announced lower-than-expected results for the first quarter of fiscal 2025. However, shares jumped after the results, as the company maintained its full-year guidance and announced its partnership with Uber.
Coming to shareholder returns, Darden repurchased about 1.2 million shares for $172 million in Q1 FY25 and paid $166 million in dividends. With a quarterly dividend of $1.40 per share (annualized dividend of $5.60), DRI stock offers a dividend yield of 3.3%.
Following the print, BTIG analyst Peter Saleh reaffirmed a buy rating on DRI stock. He boosted the price target to $195 from $175, citing multiple sales drivers — including increased promotions, price point advertising and the Uber Eats partnership — that are expected to significantly boost same-store sales at the company’s Olive Garden chain.
The Uber Eats partnership will start this fall with a pilot for delivery at about 100 Olive Garden units. Saleh expects the Uber Eats partnership to generate a mid-single-digit comparable sales benefit over time. The analyst noted that while Q1 FY25 performance was impacted by unexpected industry weakness in July, the company’s comparable sales growth turned positive across all brands, except Fine Dining, in September.
Overall, Saleh remains bullish on DRI stock, given that it is a “combination of an industry-leading operator with consistent earnings growth at an attractive valuation.”
Saleh ranks No. 422 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, delivering an average return of 10.7%. (See DRI Stock Buybacks on TipRanks)
Target
Big-box retailer Target (TGT) is this week’s third dividend pick. In June, Target announced a 1.8% rise in its quarterly dividend to $1.12 per share. This marked the 53rd consecutive year in which the company increased its dividend. TGT stock offers a dividend yield of 2.9%.
Last month, Target announced better-than-anticipated results for the second quarter of fiscal 2024 amid macro challenges. The company paid $509 million in dividends and repurchased shares worth $155 million in the fiscal second quarter. 
Recently, Target announced the appointment of Jim Lee as the company’s new CFO. Following the news, Jefferies analyst Corey Tarlowe reaffirmed a buy rating on TGT stock with a price target of $195. The analyst is upbeat about the hiring of the new CFO and thinks that he could enhance the company’s food and beverage focus, given his experience at consumer staples giant PepsiCo.
Tarlowe noted the company’s commentary during the Q2 earnings call about food and beverage being a traffic-driving category. He added that the company’s price reduction across nearly 5,000 items over the summer fueled higher unit and dollar sales. With the appointment of Lee as the new CFO, the analyst sees the opportunity for further price cuts and increased volumes. He also expects TGT’s margins to improve under Lee.
Despite near-term pressures, Tarlowe is bullish on TGT’s long-term prospects. He emphasized that the company’s “significant investments in price, omnichannel, and stores are showing solid returns and share gains.”
Tarlowe ranks No. 319 among more than 9,000 analysts tracked by TipRanks. His ratings have been profitable 67% of the time, delivering an average return of 17.1%. (See TGT Stock Charts on TipRanks) More