Choose wisely. There is only one correct answer to each question.
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1.
Because fund families tend to have a lot of funds in them, you are assured of finding plenty of diversity to choose from.
False. Many fund families specialize in one type of fund, for example, large-growth funds. A big family isn't always a guarantee of diversity.
2.
Why might a concentrated fund not be a wise idea for a beginning investor's first fund?
They tend to be more volatile than well-diversified funds. As a rule, beginning investors might find well-diversified funds more suitable because they are less volatile.
3.
Why could it be a bad idea to buy a single-sector fund as your first fund?
Such funds are volatile. Funds focusing on only one area of the market are not necessarily poor performers or more expensive, but they tend to be less stable than funds owning stocks from various industries.
4.
Why might your first fund be one that favors large companies?
Because these funds tend to be less volatile than funds owning smaller companies. Funds that own large companies, in general, may not be higher returning or cheaper, but they tend to be steadier investments than those owning smaller companies.
5.
Which type of large-company fund generally makes the best first fund?
Large blend. Blend funds own stocks with both value and growth characteristics and typically don't favor particular sectors over others. They therefore offer more diversification than most large-value or large-growth funds do.
