Choose wisely. There is only one correct answer to each question.
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1.
Why do rookie funds often cost more than established funds?
Because rookie funds generally have fewer shareholders to cover costs. As funds grow, they begin to enjoy economies of scale; in other words, there are more shareholders to cover costs.
2.
Rookie funds often cost more than established funds because they have more shareholders to pay dividends to.
False. They cost more because they have fewer shareholders. They don't benefit from an economy of scale.
3.
Why is it important to examine a rookie fund's portfolio?
Both of the above. Without past return and risk statistics to guide your decision, the portfolio is the best indication of a fund's potential.
4.
Why should you favor managers who invest in their own funds?
Their interests are aligned with yours. Managers who also own the funds they run are shareholders, too, which means they're more likely to keep costs lower and minimize taxable distributions.
5.
A wise strategy for many investors regarding rookie funds is to use them _______.
As the fringe of their portfolio. Given their risk levels and their lack of performance history, it may be wise to treat these new funds cautiously, as a minority position in one's portfolio.
