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

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1.
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.
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 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.
4.
An advantage of ETFs over mutual funds is that they have lower overhead charges.
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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.
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.