Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
Which statement is true?
Investing in stocks can be less expensive than investing in funds. It's especially true if you're planning to buy two dozen or so large, steady companies and hold them for many years. You will pay the up-front trading costs and not spend another dime until you sell. With mutual funds, however, you'll pay annual expenses.
3.
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.
4.
If you want to add a little oomph to your mutual fund portfolio, _______.
Add a few stocks at the edges of your portfolio. Adding stocks in small doses can rev up your returns and shouldn't damage the nest egg. An all- stock portfolio will likely have more than a "little" oomph, though.
