Choose wisely. There is only one correct answer to each question.
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1.
Which type of index fund is generally the least tax friendly?
Small-company index fund. Small-cap index funds reap big taxable gains when companies grow too large for the index, forcing the fund to sell those stocks. Large-cap and SP 500 index funds sell stocks when they fall out of the index, meaning they only sell small positions.
2.
If you see the letters MSCI in an index, you know you are dealing with what category of stocks?
International. The various MSCI indexes track international stocks.
3.
Because index funds are passively managed, we can expect their annual expenses to be very low.
False. Though we should expect that, we unfortunately cannot, as some funds still charge high annual expenses.
4.
The Russell 2000 index tracks the 2000 largest American stocks.
False. The Russell 2000 actually tracks the 1,001st to 3,000th largest U.S. stocks--in other words, the bottom 2,000 stocks in the Russell 3000 index.
5.
Which of the following types of index funds is typically the least tax efficient?
Small-cap index fund. The small-cap funds eventually have to sell stocks that have grown too large for their indexes, and this creates taxable capital gains.
