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1.
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.
2.
Which of the following types of index funds is usually most tax efficient?
Large-cap index fund. When large-cap funds need to sell stocks that become too small for their indexes, they do create taxable capital gains, but those gains are usually quite small.
3.
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.
4.
Which statement is false?
Index funds are all cheap. Given that index-fund managers aren't actively researching and selecting stocks, all index funds ought to be cheap.
5.
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.
