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ETFs 101: Exchange-Traded Funds

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1.
Which statement is false about exchange-traded funds?
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ETFs are always the cheaper choice for all investors. Although the annual expenses of ETFs are below those of mutual funds, you must pay a commission each time you buy an ETF. As a result, ETFs may not be cheaper choices for investors who invest a little bit at a time, or those who trade actively.
2.
Exchange-traded funds charge commissions.
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True. Unlike their competitors the no-load index funds, ETFs do charge commissions.
3.
Because their shares are sold to other investors rather than redeemed, exchange-traded funds do not need to buy and sell stocks.
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False. ETFs do at times need to buy and sell stocks, but it is in order to adjust for changes to their underlying indexes.
4.
What are exchange-traded funds?
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Baskets of securities that are traded on an exchange. ETFs are part mutual fund, part stock.
5.
The price of an exchange-traded fund on the market is _______.
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Either the net asset value or a price higher or lower than that. Exchange-traded funds do not necessarily trade at the net asset values of their underlying holdings; they are sometimes higher or lower, based on demand and other factors.