Test your mutual fund knowledge with this quiz
Although you probably haven’t gotten rich off them lately, mutual funds remain a cornerstone of retirement planning. But they’re widely misunderstood, and investing ignorance can really cost you.
So, can you tell a fund expense ratio from a turnover ratio? What about an open-end fund from a closed-end?
Try this quiz, and check out the answers at bottom:
1. What percentage of American households own mutual funds?
(a) 10 percent (b) 27 percent (c) 45 percent
2. When was the key law governing mutual-fund operations adopted?
(a) 1924 (b) 1933 (c) 1934 (d) 1940
3. How many mutual funds are there in the U.S.?
(a) About 1,000 (b) About 4,000 (c) about 8,000
4. What’s a fund’s expense ratio?
(a) The sales fee paid when you buy into a fund, expressed as a percentage of how much you invest
(b) The fee charged to manage the fund and cover other ongoing expenses, expressed as a percentage of the fund’s assets
(c) The fee you pay to a broker who sells you the fund
5. What’s a fund’s turnover ratio?
(a) A measure of how often a fund’s managers are replaced (b) How frequently the fund trades stocks or other investments in and out of its portfolio (c) How often the fund gets new investors and loses existing clients
6. True-or-false: An open-end fund can issue as many or as few shares as investors demand, with potentially no limits on the number of investors in the fund, or the amount of money it can hold.
(a) True (b) False
7 cash til payday. True-or-false: Mutual funds are prohibited from using investing strategies that unregulated hedge funds can employ.
(a) True (b) False
8. True-or-false: You can lose money in a fund that’s called an "absolute return" fund.
(a) True (b) False
9. Fund managers’ interests should be aligned with their investors. But what percentage of managers don’t invest in their funds — in other words, how many don’t "eat their own cooking"?
(a) 10 percent (b) 35 percent (c) More than 50 percent (d) More than 75 percent
10. True-or-false: After losing money on stocks, I played it safe by investing in a money-market mutual fund last October. The government is temporarily guaranteeing most money funds through Sept. 18. So I’m protected if something bad happens, right?
(a) True (b) False
Answers: 1. (c) 2. (d) 3. (c) 4. (b) 5. (b) 6. (a) 7. (b) 8. (a) 9. (c) 10. (b)
HOW DID YOU DO?
0-3: It’s time to take Mutual Funds 101.
4-5: You’re progressing, but how about picking up a few mutual fund books or checking out some websites?
6-7: Pretty good, but your knowledge gaps could put you at risk of getting into the wrong fund.
8-9: Very good, your fund acumen is admirable.
10: You’re a mutual funds master.
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