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

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1.
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.
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.
The in-kind creation and redemption process for ETFs means that the cost basis of stocks can be done away with.
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True. It can be washed away because shares of underlying companies are traded in-kind rather than for cash.
4.
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.
5.
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.