Understand index funds, diversification and fees: test your skills
Decades of data keep reaching the same conclusion: the boring fund usually beats the brilliant one. Answer each question to see the explanation; your score appears at the end.
This test checks that you can
- Explain what an index fund owns
- Compare expense ratios in dollars
- Understand a simple two-to-three fund mix
- Practice
1. An index fund…
- Practice
2. A 0.40% expense ratio on $20,000 costs about…
- Practice
3. Does diversification remove all risk?
- Key idea
4. Which statement best explains "Owning the market spreads risk"?
- Key idea
5. Which statement best explains "Fees compound too"?
- Key idea
6. Which statement best explains "Simple is enough"?
- Action plan
7. In the action plan, which step comes first?
- Mistake to avoid
8. Which of these is a mistake this lesson warns against?
- Mistake to avoid
9. Which of these is a mistake this lesson warns against?
Fund A charges 0.05% and Fund B 0.75%. On $40,000, what is the yearly fee difference?
Show the answer
$280
A: $40,000 × 0.0005 = $20. B: $40,000 × 0.0075 = $300. $300 − $20 = $280.
Find the expense ratio of a fund you hold, or one in your workplace plan, and convert it to dollars on your balance.
More tests in this bootcamp
- See how compound interest builds over time
- Understand index funds, diversification and fees
- What is an ETF? Understand the basket behind a share
- Compare ETFs and mutual funds without the jargon
- Understand the S&P 500 and what it leaves out
- Explore total market funds and check the overlap
- Understand international diversification and currency risk
- Look beyond the story of a sector or thematic fund
- Understand a three-fund portfolio and rebalancing
- Learn dollar-cost averaging: a schedule instead of market timing
- Final exam: Funds and portfolios