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Index funds and ETFs quiz

Free index fund and ETF questions with answers and explanations: what an ETF holds, the S&P 500, expense ratios, dividend and sector ETFs, leveraged funds, dollar-cost averaging, John Bogle, and why most pros don't beat the index.

Tap an answer to check it, or open "Show the answer" under each question. Every question comes from a free 3-minute lesson, linked under its answer. Educational content, not financial advice.

Question 1 of 21US

What does SPY track?

  1. Nasdaq
  2. Spy companies
  3. S&P 500
  4. Dow Jones
Show the answer

Answer: C · S&P 500

SPY is the famous ETF that tracks the S&P 500 — America's 500 biggest companies.

📚 Learn it: What is an ETF?

Question 2 of 21US

What does the S&P 500 track?

  1. The 500 largest US public companies
  2. The 500 largest companies in the world
  3. 500 companies picked at random each year
  4. The 500 fastest-growing US tech startups
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Answer: A · The 500 largest US public companies

The S&P 500 is a market-weighted index of the 500 largest US public companies, picked by S&P Dow Jones Indices.

📚 Learn it: The S&P 500 — America's Default Bet

Question 3 of 21US

What do you actually own when you buy an S&P 500 index fund?

  1. Stock in the company that runs the index fund
  2. A share of the fund manager's top stock picks
  3. Bonds from ~500 large U.S. companies paying fixed interest
  4. A tiny piece of ~500 large U.S. companies at once
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Answer: D · A tiny piece of ~500 large U.S. companies at once

You own a small slice of the whole index — instant diversification in a single purchase.

📚 Learn it: The Lazy Investment That Beats the Pros

Question 4 of 21

What's an expense ratio?

  1. Commission your broker charges each time you trade
  2. One-time fee you pay when you first buy the fund
  3. Tax the IRS charges on the fund's yearly profits
  4. Annual fee an ETF/fund charges, taken automatically
Show the answer

Answer: D · Annual fee an ETF/fund charges, taken automatically

Expense ratios are deducted automatically from the fund's returns each year. You never see the bill — which makes them sneakier.

📚 Learn it: Expense Ratios — The Silent Killer

Question 5 of 21

What does XLK track?

  1. The energy sector
  2. The whole US market
  3. The tech sector
  4. The financial sector
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Answer: C · The tech sector

XLK is the Technology Select Sector SPDR — it holds tech giants like Apple, Microsoft, Nvidia.

📚 Learn it: Sector ETFs — Bet on Industries

Question 6 of 21

What does a dividend ETF give you?

  1. Regular cash payouts plus any price growth
  2. Fixed payouts guaranteed every year
  3. Tax-free cash payouts in any account
  4. Only growth — the fund keeps dividends
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Answer: A · Regular cash payouts plus any price growth

It pays out a stream of cash from its companies' profits, on top of any price appreciation.

📚 Learn it: Dividend ETFs — Getting Paid to Hold

Question 7 of 21

Leveraged ETFs are designed to track...

  1. The market's dividends, paid at 2x
  2. The YEARLY market move, multiplied
  3. Interest rates on their borrowing
  4. The market's DAILY move, multiplied
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Answer: D · The market's DAILY move, multiplied

They target a multiple of the DAILY return and reset each day — not the long-term result.

📚 Learn it: Leveraged & Inverse ETFs — The Ones With Warning Labels

Question 8 of 21

When prices drop, your fixed monthly investment...

  1. Loses value instantly
  2. Buys more shares
  3. Buys fewer shares
  4. Stops automatically
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Answer: B · Buys more shares

Same dollars plus a lower price equals more shares. Downturns quietly work in your favor.

📚 Learn it: The Boring Trick That Beats Market Timing

Question 9 of 21

Buffett's $1M bet: an index fund vs hedge funds over 10 years. Who won?

  1. Roughly a tie after fees
  2. Index won by a hair (~5%)
  3. Index fund won by ~3.5X
  4. Hedge funds won by ~1.5X
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Answer: C · Index fund won by ~3.5X

Index fund: +125.8%. Hedge funds: +36.3%. Index won by about 3.5x — over 10 years. With NO active management, almost NO fees, NO genius required.

📚 Learn it: Warren Buffett's Million-Dollar Bet

Question 10 of 21

What did John Bogle invent?

  1. The first mutual fund for retail investors
  2. The 401(k) retirement plan for American workers
  3. The first ETF traded on a US stock exchange
  4. The first index fund for retail investors
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Answer: D · The first index fund for retail investors

Bogle launched the first index fund accessible to regular investors in 1976. It's now the dominant way Americans invest.

📚 Learn it: John Bogle — He Saved Investors Billions

Learn it in the app: ETFs & Index Funds lessons, free →

3-minute lessons with a quiz, XP and streaks in the free app. No sign-up needed.

Question 11 of 21

Main advantage of an ETF?

  1. Guaranteed profit, since it holds many stocks
  2. No fees at all, unlike mutual funds
  3. Instant diversification in one purchase
  4. It beats the market by picking winners
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Answer: C · Instant diversification in one purchase

One ETF share spreads your money across hundreds of companies — instant diversification.

📚 Learn it: What is an ETF?

Question 12 of 21

Why do index funds usually beat actively managed funds long-term?

  1. They take on more risk + chase the hottest stocks each year
  2. Government backing + FDIC insurance that covers any losses
  3. Rock-bottom fees + broad market tends to rise over time
  4. Expert stock picking + quick trades to dodge market downturns
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Answer: C · Rock-bottom fees + broad market tends to rise over time

High fees on active funds quietly drag down returns. The cheap, broad index just compounds.

📚 Learn it: The Lazy Investment That Beats the Pros

Question 13 of 21

Which ETF has the LOWEST expense ratio?

  1. A 0.5% expense ratio fund
  2. A 0.03% expense ratio fund
  3. A 1% expense ratio fund
  4. A 0.1% expense ratio fund
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Answer: B · A 0.03% expense ratio fund

Lower is better. VOO and VTI charge ~0.03% — about as cheap as it gets (a couple of funds go to 0.02% or even 0%).

📚 Learn it: Expense Ratios — The Silent Killer

Question 14 of 21

Advantage of a sector ETF over a single stock?

  1. You bet on an industry without needing to pick the winning company
  2. You pay no fees, since it holds only one industry's stocks
  3. It doubles your exposure, so gains grow faster than the stock
  4. It earns more than the top company in that industry over time
Show the answer

Answer: A · You bet on an industry without needing to pick the winning company

If you believe AI will boom but aren't sure if Nvidia or AMD wins, a sector ETF gives you exposure to BOTH (and others) at once.

📚 Learn it: Sector ETFs — Bet on Industries

Question 15 of 21

A suspiciously high dividend yield often means...

  1. The stock is a bargain that's likely to bounce back soon
  2. The company is so profitable it can share extra cash
  3. The fund is extra safe because it pays you more
  4. The price crashed and the dividend may be cut
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Answer: D · The price crashed and the dividend may be cut

Yield rises when price falls — a huge yield often signals a troubled company about to cut its payout.

📚 Learn it: Dividend ETFs — Getting Paid to Hold

Question 16 of 21

Why are leveraged ETFs risky to hold long-term?

  1. Daily resets cause volatility decay that erodes value
  2. Their gains are capped once the index rises more than 10%
  3. They expire after a year and your shares become worthless
  4. They pay high dividends that trigger big yearly tax bills
Show the answer

Answer: A · Daily resets cause volatility decay that erodes value

The daily reset math drifts over time; choppy markets can bleed value even if the index is flat.

📚 Learn it: Leveraged & Inverse ETFs — The Ones With Warning Labels

Question 17 of 21

Why do most professional money managers UNDERPERFORM?

  1. Bad luck + markets have crashed more often over recent decades
  2. High fees + impossible to consistently beat the whole market
  3. Strict rules + regulations that ban them from buying top stocks
  4. They're lazy + rarely research the companies they pick
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Answer: B · High fees + impossible to consistently beat the whole market

Hedge funds charge 2% annually + 20% of profits. Index funds charge 0.03%. That fee gap compounds against active managers. Plus beating the WHOLE market consistently is basically impossible.

📚 Learn it: Warren Buffett's Million-Dollar Bet

Question 18 of 21

What's Bogle's main investing principle?

  1. Own the whole market cheaply, let compounding work
  2. Pay up for active funds, since top managers earn it
  3. Trade fast and often to catch every short-term move
  4. Beat the market by picking the best fund managers
Show the answer

Answer: A · Own the whole market cheaply, let compounding work

Bogle's insight: since most pros underperform the market, just OWN the market at minimum cost and beat 80% of pros that way.

📚 Learn it: John Bogle — He Saved Investors Billions

Question 19 of 21

Why does Warren Buffett recommend index ETFs?

  1. They pick only the best stocks
  2. Most pros cannot beat them long-term
  3. They have no fees and no taxes
  4. They double every five years
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Answer: B · Most pros cannot beat them long-term

Over time, low-cost index ETFs beat the large majority of professional stock pickers — after fees.

📚 Learn it: What is an ETF?

Question 20 of 21

Disadvantage of sector ETFs vs broad index funds?

  1. Only accredited investors with $1M+ can legally buy them
  2. You can only sell them once a year, on the fund's chosen date
  3. You're concentrated in one industry — if it tanks, you tank
  4. They hold more companies, so your gains get watered down more
Show the answer

Answer: C · You're concentrated in one industry — if it tanks, you tank

Concentration is the tradeoff. Energy ETFs lost 50%+ in 2020's oil crash. A diversified index is safer; a sector bet has higher upside AND higher risk.

📚 Learn it: Sector ETFs — Bet on Industries

Question 21 of 21

What company did Bogle found?

  1. BlackRock
  2. Vanguard
  3. Charles Schwab
  4. Fidelity
Show the answer

Answer: B · Vanguard

Bogle founded Vanguard in 1975. Famously structured as owned BY its fund investors — which is why fees are so low.

📚 Learn it: John Bogle — He Saved Investors Billions

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