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Funds 411: Buying Rookie Funds

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1.
Rookie funds often cost more than established funds because they have more shareholders to pay dividends to.
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False. They cost more because they have fewer shareholders. They don't benefit from an economy of scale.
2.
A wise strategy for many investors regarding rookie funds is to use them _______.
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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.
3.
What can you not count on when trying to get an idea of a rookie fund's risk level?
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Historical risk measures. A new fund will have no (or perhaps many fewer) past years of risk measures to draw from. Therefore, you should gauge risk by how the portfolio is constructed currently.
4.
Why should you favor managers who invest in their own funds?
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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.
5.
Which rookie fund should you consider avoiding?
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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.