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ETFs 104: Mutual Funds or Exchange-Traded Funds--Which to Choose?

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1.
An advantage to the exchange-traded aspect of an ETF is _______.
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All of the above. ETFs can be traded like stocks, including the use of special order types, shorting and the use of options.
2.
An ETF may be the most cost-effective choice over mutual funds for investors who _______.
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All of the above. Otherwise, a mutual fund may be more cost effective.
3.
A key difference between mutual funds and exchange-traded funds is _______.
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ETFs are traded on an exchange, whereas mutual funds are traded with the fund company. The "ET" in ETF stands for exchange-traded. ETFs are bought and sold on an exchange like a stock, whereas mutual funds are transacted either directly or through a broker with the fund company.
4.
Which of the following is better structured to shield investors from capital gains?
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ETFs. ETFs are better able to shield investors from capital gains, due to the 'in-kind' nature of trading.
5.
When paying a trading commission on each trade, what sort of investment strategy is better used with mutual funds than ETFs?
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Dollar cost averaging or reinvestment plans. Because they involve many smaller transactions, each potentially incurring transactions cost, dollar cost averaging or reinvestment plans are generally better implemented with mutual funds.