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1.
Which of the following is better structured to shield investors from capital gains?
ETFs. ETFs are better able to shield investors from capital gains, due to the 'in-kind' nature of trading.
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.
An advantage to the exchange-traded aspect of an ETF is _______.
All of the above. ETFs can be traded like stocks, including the use of special order types, shorting and the use of options.
4.
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.
5.
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.
