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

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1.
An ETF may be the most cost-effective choice over mutual funds for investors who _______.
Choose wisely. There is only one correct answer.
All of the above. Otherwise, a mutual fund may be more cost effective.
2.
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.
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.
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.
5.
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.
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