Final answer:
Exchange-traded funds often offer automatic reinvestment of dividends, allowing investors to acquire more shares rather than receiving cash.
Step-by-step explanation:
Exchange-traded funds (ETFs) are investment funds that trade on stock exchanges, similar to individual stocks. One of the advantages of ETFs is that they often offer automatic reinvestment of dividends. This means that when an ETF pays out a dividend, instead of receiving cash, investors have the option to automatically reinvest that dividend back into the ETF, acquiring more shares. This can help to compound returns over time.
For example, let's say you own 100 shares of an ETF and that ETF pays a dividend of $0.50 per share. With automatic reinvestment, instead of receiving $50 in cash, you would acquire an additional 100 shares of the ETF. Over time, this can result in a greater number of shares and potentially higher returns.
Therefore, the statement that exchange-traded funds offer automatic reinvestment is true.