308- What’s Your Investing IQ?
Written by Guest Contributor: Paul A. Werlin, President, Human Capital Resources, Inc.
Inflation is soaring, there’s a war in Ukraine, the US Federal Reserve has raised interest rates for the first time in years, and oil and gas prices are through the roof. What’s an investor to do? Even in the best of times, it’s not easy to pay the bills, save for your kid’s education and plan for retirement. With so many choices out there, it’s harder than ever to make choices you really understand and will actually help you reach your goals.
As I’ve said in several of my previous posts to this site, unless you’re willing to spend the time studying, researching and understanding investments I encourage most people to find professional financial help. But even with the best help, that doesn’t mean you shouldn’t learn as much as you can. After all, it is your money! So, as part of Financial Literacy Month, I invite you to take a short quiz about investing, investments and becoming financially secure to get a quick picture of your knowledge.
By the way, there are many other financial and investment quizzes out there (here’s a good short one: https://www.usfinancialcapability.org/quiz.php) that will either comfort you if your score well (at least 6 correct), or scare the heck out of you if you don’t!
1. “The Rule of 72” is helpful in estimating:
a. a company’s future earnings b. how long it takes for money to double at a specific interest rate c. how many investments needed to be held to be fully diversified d. how many years a stock should be held to achieve a full return
2. The current percentage of Americans that own stocks is____ including retirement accounts, but only ____ direct ownership:
a. 55% and 15% b. 70% and 30% c. 40% and 5%
3. Depending on the type of help you get, your Financial Advisor can earn:
a. a fixed percentage charge on assets in your account b. commissions on all buys and sells c. a flat dollar annual fee d. combination of any of these
4. Some of the key features of fixed Annuities include generally all of the following except:
a. A declared interest rate for a stated period of time b. taxed deferred growth
b. Safety of principal d. total liquidity at any time without penalty
5. In a rising interest environment, the prices of bonds:
a. goes up b. unaffected c. fall
6. The best performing asset class over the past ten years is:
a. real estate b. gold c. stocks d. bitcoin
7. If you invest $1000 in a 1-year bank CD that pays 3%, but inflation is 5% and you’re in a 20% tax bracket, your “buying power” at the end of the year will be:
a. $1030 b. $1000 c. $1125 d. $973
8. All the following are risks of any investment except:
a. Market risk b. opportunity risk c. energy cost risk d. liquidity risk
9. In considering an investment you should always consider:
a. Risk b. liquidity c. tax impact d. all of these
10. An important feature of stocks for people looking for current income are:
a. Company stock buy-backs b. dividends c. PE ratio d. earnings
1. b. At 5%, money will double in approx. 14 years (72/5)
2. a. As of 2020, approx. 55% of Americans held stocks, mutual funds, etc., in all accounts including IRAs and all retirement plans. Only 15% held them outright
3. d. Fees/commissions charged varies depending on the firm they work for and the licenses they hold. Be sure to ask.
4. d. Most annuities have restrictions or penalties if you want money prior to maturity or annuitization.
6. d. By a lot!
7. d. Because of taxes and inflation, at the end of the year your $1000 will only be able to buy goods and services worth $9,728.
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