Question

Keith is a recent college graduate starting a new career with a salaried position. He wants to start saving for retirement and was told about ETFs by a coworker.

Which features and factors should Keith research prior to investing in an ETF? Select all that apply.

diversification
trading costs and fees
current market instability
pre-tax versus post-tax deductions
Federal Reserve interest-rate decisions

Answer 1

Select: diversification; trading costs and fees; current market instability; Federal Reserve interest‑rate decisions.

Brief reasons:
- Diversification: different ETFs track different baskets (sectors, countries, market caps), so check the holdings and overlap with your other investments.
- Trading costs and fees: include the ETF’s expense ratio, bid–ask spread, and any broker commissions—these affect returns.
- Current market instability: market volatility affects short‑term ETF prices and helps you assess risk/timing and your own risk tolerance.
- Federal Reserve interest‑rate decisions: rates materially affect bond ETFs and can influence equity valuations and sector performance.

Do not select pre‑tax versus post‑tax deductions here — that’s about how you fund retirement accounts (tax treatment of contributions), not a feature of the ETF itself (though tax treatment of ETF distributions is a separate consideration you may also want to check).