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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.
What helps make ETFs generally more tax efficient than mutual funds?
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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.
3.
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.
4.
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.
5.
A potential disadvantage to the exchange-traded aspect of an ETF is _______.
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All of the above. Market prices of an ETF can deviate from the underlying net asset value. ETFs are bought and sold likes stocks, so bid ask spread costs and commissions costs can be incurred.