Choose wisely. There is only one correct answer to each question.
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1.
In stock investing, the profit you earn on a stock after you sell it is a _______.
Capital gain. Capital gains are the primary "oomph" that stocks can provide.
2.
Buying a collection of stocks can be cheaper than holding on to a mutual fund because _______.
Both of the above. The nature of the cost structure can benefit stock owners who hold their stocks for long periods.
3.
If you have the resources and want to buy stocks and save on mutual fund expenses, _______.
Assemble a collection of two dozen stable, leading companies that represent a variety of industries and hold them for years to come. If you've put together a truly diverse group of the largest U.S. companies, you'll likely get marketlike results. Active trading will make the strategy less cost effective, because it costs to trade.
4.
If you want to control how much you pay in capital gains taxes each year, which of the options below is your best choice?
Own stocks directly. Mutual funds are required to distribute capital gains that their managers realize during the year; as a result, fund investors often receive taxable distributions that they didn't want or expect. When you own stocks directly, however, you control when you buy or sell, thereby controlling your own tax destiny.
5.
Why do stockholders have more control over their capital gains taxes than mutual fund holders do?
With stocks, there are no capital gains until the owner decides to sell her stock, and only if there is a profit. Mutual funds, however, must distribute any gains made during the year, whether fundholders want them or not. This can create a tax headache.
