Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
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.
Which rookie fund should you consider avoiding?
One run by a manager with no mutual fund experience. With so many worthwhile funds to choose from, it's a big risk to take on an unknown quantity.
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.
