What Is Your Investment IQ?

Having a thorough knowledge of investing is crucial if you want to increase your chances of achieving inflation-beating returns on your retirement investments. The following quiz may help you learn more about basic investment concepts.

• Which strategy will do the best job of reducing overall investment risk, including the risk of inflation?
• Investing only in growth stocks
• Diversifying your investments by placing your retirement savings in a number of different investments
• Investing all of your account savings in guaranteed interest investments
• Which of the following best describes the general relationship between investment risk and return?
• The greater the risk, the greater the return
• The greater the risk, the lower the return
• There is no relationship between risk and return
• Which choice is not true of inflation?
• It has been relatively low in recent years
• It will hold steady at its current rate for the next 25 years
• It is the rise in price of goods and services
• The process of dividing your investments among the basic investment classes is called _______.
• Targeted Investing
• Market timing
• Asset allocation
• Which investments would a balanced fund usually have?
• Stocks and bonds
• Commercial and residential real estate
• U.S. and international stocks
• The main risk of investing in conservative investments, such as money market funds, is the potential loss of _____?
• Principal
• Interest
• Purchasing power
• When interest rates increase, how do bond prices move?
• a. Up
• b. Down
• c. Bond prices always stay the same
• Which of the following investment mixes would be most suitable for the majority of under-age-30 plan participants?
• 70% stocks, 20% fixed income, and 10% money market investments
• 5% stocks, 75% fixed income, and 20% money market investments
• 30% stocks, 40% fixed income, and 30% money market investments
• Generally, stocks perform best under which of the following circumstances?
• When the economy is in a downturn
• When the economy is on the rise
• Economic trends have little impact on stock performance
• Experts estimate that you’ll need the following percentage of your pre-retirement income to maintain your standard of living after retirement.
• 50% to 60%
• 40% to 50%
• 70% to 80%

Answers: 1. b, 2. a, 3. b, 4. c, 5. a, 6. c, 7. b, 8. a, 9. b, 10. c

10 correct: Congratulations, perfect score!

8 or more correct: You have a satisfactory understanding of investment basics.

5 to 7 correct: You may want to read up on some areas of basic investing.

4 or less correct: Time to hit the books. To effectively manage your retirement savings, you need to know more about basic investment principles.