FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, age 38, has a moderate risk tolerance and wishes to invest a portion of their portfolio in a product that offers diversification, professional management, and the ability to trade throughout the day at market prices. Which of the following investment products would be MOST suitable?
- AClosed-End Mutual Fund
- BOpen-End Mutual Fund
- CExchange Traded Fund (ETF)
- DVariable Annuity
Show answer & explanationAnswer & explanation
Correct answer: C. Exchange Traded Fund (ETF)
ETFs offer diversification, professional management, and, unlike open-end mutual funds, trade on exchanges throughout the day at market prices. This aligns with the client's desire for intraday trading flexibility.
Why the other options are wrong
- A. While closed-end mutual funds trade on exchanges like ETFs, their pricing and structure are different, and ETFs are generally more widely known and utilized for the specific combination of features mentioned.
- B. Open-end mutual funds are priced once per day at Net Asset Value (NAV) at the end of the trading day, not throughout the day at market prices.
- D. Variable annuities are primarily for retirement income and tax-deferred growth, not typically for intraday trading and market price execution.
Exchange Traded Fund (ETF)
A type of investment fund that holds assets such as stocks, commodities, or bonds, and trades like a common stock on a stock exchange.
- Offers diversification and professional management.
- Trades throughout the day at market prices.
- Typically has lower expense ratios than actively managed mutual funds.
Memory trick: Managed funds: ETFs 'E'xchange 'T'hroughout the 'F'ast day.