What's Your Financial IQ?
It takes most people 5 to 10 minutes to complete the quiz. You'll get your score and clear explanations of every answer as soon as you complete the quiz.
- 1.What percentage of mutual funds, financial experts, and investment advisory services underperform the overall market and comparable indexes?
- A.
95%
- B.
80%
- C.
50%
- D.
20%
- 2.The top-performing mutual fund for the decade ending December 31, 2009, enjoyed an 18% annual return. What annual return did the fund’s typical investors actually receive?
- A.
17%, after fees
- B.
14% - 18% depending on investors’ hold time
- C.
Lost an average of 11%
- D.
8%, due to inflation, taxes, and fees
- 3.How much of the value of your savings will be consumed over the next 35 years, if you pay fees of 1% per year and your returns average 7% per year?
- A.
1%
- B.
3%
- C.
10%
- D.
28%
- 4.If you own a $20 stock and it goes up by 40%, how much money did you make on that stock?
- A.
$8, less the commission
- B.
Nothing
- C.
It depends on your original purchase price (cost basis)
- D.
$28
- 5.The Pension Protection Act of 2006, passed by Congress, is about 401(k) retirement plans. Who does this law protect?
- A.
Employees who put money into their companies’ 401(k) plans
- B.
Employers who offer 401(k) plans
- C.
Workers not eligible for a 401(k) plan
- D.
Workers whose pension funds were at risk
- 6.If someone had made a $10,000 investment in gold in 1802, how much would that investment have been worth in 2008 (206 years later), after adjusting for inflation?
- A.
$26,000
- B.
$132,500
- C.
$436,000
- D.
$1.2 million
- 7.Investors are often advised to invest in asset allocation mutual funds, which spread your money among a blend of equities and fixed-income funds. In theory, this reduces risk of loss. What annual return did the average investor in asset allocation funds realize over the last 30 years?
- A.
Less than 2% per year
- B.
About 7%
- C.
About 10%
- D.
More than 12%
- 8.Many people today say they’ll just keep working to make up for their retirement savings shortfall. But that may not always be an option. What portion of current retirees were forced out of work earlier than they planned?
- A.
About one-fourth
- B.
Almost one-third
- C.
Almost half
- D.
About 75%
- 9.If you take distributions from a 401(k), IRA, or other tax-deferred retirement plan before you’re 59½, in most cases you’ll pay:
- A.
Income tax on the amount you withdraw, plus a 10% penalty on the amount you withdraw
- B.
Income taxes but no penalty, if you pay the money back within five years
- C.
A penalty of 5%, plus tax on any gains in your account
- D.
Just the taxes you would have owed at the time you put the funds into the plan
- 10.In a tax-deferred government-approved retirement account, such as a 401(k) plan or an IRA, when must you start taking required minimum distributions (RMDs) and paying taxes on the distributions?
- A.
If you don’t need the money, you may file the proper IRS form and not take a distribution until you need it. No taxes will be due until you withdraw money from your account
- B.
You must start taking distributions and paying taxes on them by April 1 of the year following the year in which you turn 70½
- C.
You may defer distributions until age 80½, although you must pay tax annually on any capital gains
- D.
You must pay estimated taxes starting at 70½, but you may defer distributions until you are 80½, so your fund can continue to grow
- 11.Many 401(k) plans allow workers to take loans up to certain limits from their accounts during their employment. If you lose your job or leave the company for any reason, how soon must you pay back your loan (plus interest), in order to avoid owing income taxes plus a 10% penalty?
- A.
10 days
- B.
30-60 days
- C.
180 days
- D.
One year, as long as you continue to pay the interest due on your loan
- 12.One of the biggest appeals of 401(k) plans and IRAs is that they let you defer paying income tax on the money you place in them. How much can you expect to save by deferring the tax?
- A.
10%-22%. You’ll probably be in a lower tax bracket when you have to pay the tax, since your income will likely be reduced in retirement
- B.
You might not save anything, and in fact, you might end up paying more
- C.
It’s impossible to say, but the amount you will save is likely to be substantial
- D.
You can typically expect to save about 40% of the taxes you would have had to pay
- 13.What is the difference between saving and investing?
- A.
To save means to put money where it will grow very slowly (or not at all), and to invest means to put money where it will grow much faster
- B.
To save means to put money in a vehicle that is safe, protected from loss, and has guaranteed growth, and to invest means to put money in a financial vehicle or asset that has a certain amount of risk and no guarantees of growth
- C.
To save means to put money into any kind of an account at a bank, and to invest means to put money into a brokerage account
- D.
There is no significant difference between saving and investing. The words mean essentially the same thing and can be used interchangeably
- 14.What is the definition of a liquid asset?
- A.
An asset is liquid if you can sell it relatively quickly to a willing buyer to get your money out, although you may have to take a loss
- B.
Money you have in bonds or CDs is liquid
- C.
Your money is liquid if you can get your hands on it immediately, without incurring a loss or selling an asset
- D.
Any asset you can use as collateral for a loan is, by definition, liquid
- 15.If you pay cash for a $25,000 car (meaning you pay for it up front, and you don’t make payments to a finance or leasing company), what is your actual cost to purchase the car?
- A.
$25,000
- B.
About $22,000 ($25,000, less approximately $3,000 in finance charges you didn’t have to pay)
- C.
Trick question; it’s usually better to lease
- D.
$25,000 plus the interest or investment income you could have earned, if you hadn’t withdrawn the money to pay cash for the purchase
- 16.What return on investment do you receive on the payments of principal you make into your home as you pay down your mortgage?
- A.
The same percentage as the increase in the appraised value (or sales price) over the cost basis of your original purchase
- B.
The reduction in the loan amount, subtracted from the current appraised value
- C.
The return you receive is equal to the interest rate you pay on your mortgage
- D.
Payments of principal you make into your home do not earn interest or make you any money
- 17.How much money will a typical 65-year-old couple retiring today need to cover out-of-pocket health care costs during their lifetimes?
- A.
$3,500 per year, for supplemental insurance
- B.
$220,000
- C.
The husband (average life expectancy 83) will require $28,000 while the wife (average life expectancy 85) will require $41,000
- D.
About $5,000 per year, thanks to the Affordable Care Act
- 18.At least 70% of people over 65 will require long-term care services at some point, and 40% will need nursing home care, according to the U.S. Department of Health and Human Services. Based on the length of an average nursing home stay, how much money will you need to cover a typical stay in a nursing home?
- A.
$30,000
- B.
$100,000
- C.
$250,000
- D.
Medicare covers most of the cost
- 19.According to the Social Security Administration, what percentage of people turning 65 today will live past age 90?
- A.
5%
- B.
10%
- C.
25%
- D.
40%
- 20.Since 1929, how many market crashes have there been in which the Dow Jones Industrial Average took at least 16 years to return to pre-crash levels?
- A.
0
- B.
1
- C.
3
- D.
7
Questions: 20 | Attempts: 1026 | Last updated: Mar 21, 2022
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