The Motley Fool Discussion Boards
Retirement Discussions / Retired Fools
|Subject: Re: Closed End Mutual Funds||Date: 3/23/2001 10:11 AM|
|Author: GrayWulff||Number: 6419 of 19222|
Since CEF trade like stocks, are they similar to exchange traded funds?
ETF's tend to track their Net Asset Value very closely. That's because anyone with the cash can buy 50,000 shares on the open market and trade them in for the underlying securities. Likewise, anyone can buy the underlying stocks and trade them in for 50,000 shares of the ETF. That mechanism provides motivation for large investors (banks, brokerage houses, Bill Gates, etc. ) to keep an eye on these securities and make the swap when prices get out of line. That's good news for us small investors.
What type of accounts are CEFs suitable for?
ETF's like SPY, the S&P500 spider, are suitable for people who want to invest in an S&P500 index fund, but also want to keep all their money in a brokerage account. SPY are also less likely to genterate capital gains from annual turnover, than are funds like VFINX. (Even though it is true that VFINX is very tax efficient.)
People who trade on short to intermediate term fluctuations tend to prefer CEF's and ETF's over other mutual funds because they can be traded quickly.
Hope that helps.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|