Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
Stocks are required to distribute capital gains to their shareholders every year.
False. Mutual funds are required to do this if there are any to distribute, but stocks are not. With stocks, there are no capital gains until the owner sells them for a profit.
4.
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.
5.
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.
