Choose wisely. There is only one correct answer to each question.
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1.
In regard to mutual fund benchmarks, what are peer groups?
Funds that buy the same types of securities. You should compare funds to others in the same peer group.
2.
Which is the best index with which to compare a small-company fund's performance?
The Russell 2000 Index. The SP 500 includes mostly large-company stocks, and the Bloomberg US Aggregate Bond Index follows bonds. Neither is an appropriate benchmark for small-company funds.
3.
Once you've calculated your personal benchmark for investing, choose a fund that _______.
Usually returns about the same as the benchmark. It's tempting to pick a fund that returns more than you need, but remember: the greater the return, the greater the potential for loss. Be sure the fund you pick has a history of returning as much as your benchmark, or you may not meet your goal.
4.
Fund X underperformed the SP 500 by five percentage points per year during the past five years, after beating the index by just as much in the three previous years. Fund X _______.
Probably owns something other than large-company stocks. In this case, the SP 500 is probably a bad benchmark for this fund. It likely owns something other than large-company stocks. To put its performance into better context, check its record relative to its Morningstar category peers.
5.
In the world of mutual funds, peer groups are funds that buy the same types of securities that your fund buys.
True. Their value is that they give you a way to examine your fund's performance.
