Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Your personal benchmark in investing refers to _______.
The yearly return you will need to meet your goal. This figure is what you will aim to match every year you invest for your goal.
3.
Imagine that you have calculated that you need a mutual fund that returns 7% per year for the next 35 years to fund your retirement. What would be a reason NOT to instead choose a fund that returned 8, 9, or even 10% so that you could save extra?
There would be a greater risk of loss. The return is greater because the risk is greater. You would be risking your ability to retire in 35 years if you chose the fund with the higher annual return.
4.
Why is the Dow Jones Industrial Average rarely used as a performance benchmark for stock mutual funds?
Its range is very small. With only 30 stocks, it's hardly indicative of the whole stock market.
5.
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.
