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.
For most investors, rookie funds should _______.
Be held in small quantities, if at all. Consider starting out with a small position in a rookie fund, and if the fund lives up to your expectations, you can always add to it over time.
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.
