An investing pop quiz for retirement planners |

An investing pop quiz for retirement planners

Richard Loth

Retirement investing through 401(k) and 403(b) plans is not that complex. The process essentially involves learning how to use mutual funds to configure a portfolio with the appropriate asset allocation, investment diversification and fund selection.Retirement-plans are wonderful investing vehicles. But, metaphorically speaking, if the drivers of these vehicles don’t know how to drive, or they drive poorly, they’re going to have serious problems. Lack of investing experience and know-how can lead to unnecessary mistakes and wrong decisions, which will make it difficult to fund a comfortable retirement nest egg.If you have any doubts about your retirement-plan investing IQ, the first step to addressing this problem is to find out, sooner rather than later, what you know and what you don’t know. This quiz will give you an indication where you stand. A test score of at least 12 correct answers is pretty good. However, anything below 10 correct picks would be cause for concern. 1. A fund’s performance is best measured by: (a) Price appreciation and net asset value(b) Total return(c) Yield and capital gains distributions2. When it comes to selecting a fund, the best information source would be:(a) A fund’s prospectus and annual report(b) Information from a plan provider (c) A Morningstar fund report3. Stock funds always provide higher returns than bond funds.(a) True (b) False (c) True in an up market 4. Asset allocation affects an investment portfolio’s:(a) Risk (b) Return (c) Risk and return5. Is a material change in a fund’s investment objective worrisome?(a) Not a major concern(b) Depends on the type of fund(c) None of the above6. The goal of an index fund is to:(a) Beat the investment return of a specified index(b) Invest in the best-performing sectors of the market (c) Track the investment return of a specified index7. Market-capitalization is an important selection criterion for:(a) Bond funds (b) Stock funds (c) Stock and bond funds 8. Investors can avoid risk by selecting life-strategy and target mutual funds:(a) Yes (b) No (c) Depends on the investor’s time horizon 9. If two funds hold the same securities, which of these statements is true?(a) The fund with higher expenses will produce a higher return(b) The fund with the lower expense ratio will have a higher return(c) No difference – operating expenses are for account of the fund manager10. When selecting a bond index fund, what matters the most?(a) Duration, credit quality and the expense ratio(b) Total return and manager performance(c) Manager performance11. Which of the following is an attribute of asset allocation? (a) Provides a basis for selecting high-return, low-risk funds(b) Establishes a portfolio’s risk-return position(c) Increases portfolio return by helping to select specific funds12. Which type of fund has generally offered the best protection against inflation? (a) Stock (b) Money market (c) Hybrid (50 percent stocks and 50 percent bonds)13. When selecting a fund, matching management tenure with the fund’s performance record is:(a) Important (b) Important only for stock funds(c) Important only for bond funds14. Rebalancing an investment portfolio’s asset allocation should be done:(a) Every two to three years (b) Annually (c) As needed15. Does a fund’s portfolio turnover rate have performance consequences?(a) Yes (b) No (c) Yes for bond funds and no for stock fundsSee following page for answers. The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing and an independent registered investment adviser. Loth can be reached at 827-5591 or Colorado

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