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1.
An advantage of ETFs over mutual funds is that they have lower overhead charges.
True. An advantage of ETFs over mutual funds is that they don't have to manage hundreds of customer accounts or staff call centers, so they have lower overhead charges that translate into lower expense ratios.
2.
A key difference between mutual funds and exchange-traded funds is _______.
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.
3.
When paying a trading commission on each trade, what sort of investment strategy is better used with mutual funds than ETFs?
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.
4.
An ETF may be the most cost-effective choice over mutual funds for investors who _______.
All of the above. Otherwise, a mutual fund may be more cost effective.
5.
What helps make ETFs generally more tax efficient than mutual funds?
The in-kind creation and redemption process. The in-kind creation and redemption process is the process by which the cost basis of stocks can be washed away since shares of underlying companies are traded in-kind rather than for cash.
