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

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1.
A key difference between mutual funds and exchange-traded funds is _______.
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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.
2.
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.
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 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.
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.