Mutual funds and exchange-traded funds

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Your aunt has $30,000 in a saving account that pays 0.5% annual interest, and her son has told her that she could make more if she invests into the financial markets. She knows that you are a savvy financial analyst and comes to you for help. Moreover, she tells you that she does not want to invest in individual stocks but in well-diversified portfolios.

Since you wanted to make sure that you propose an asset allocation that better fits her risk aversion, you asked her to complete the investor profile questionnaire and found out that a "moderate allocation" would work well for her. You proudly tell her that the easy way to hold well-diversified portfolios is through mutual funds and exchange-traded funds (ETFs).

You proposed that she opens a trading account and to use mutual funds and ETFs to match her target asset allocation. However, she wants to know more about these securities before investing and asks you: what are the advantages and disadvantages of mutual funds versus exchange-traded funds?

Reference no: EM133058458

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