Pop Quiz: Test Your Investment Knowledge

I know, it’s too early for a quiz. But it’ll be fun! =) Vanguard has a quiz on investment knowledge with 20 questions. The questions are pretty good overall, some good questions that probe common misconceptions. I scored 95%. I know, I’m hot stuff. That’s pretty good – according to Vanguard:

“Some 1,000 investors completed the 20-question 2002 Vanguard/Money Investor Literacy Test in May and achieved a mean score of 40%, which is a modest improvement over the 37% score on a similar test administered by Vanguard in 2000.”

Yeesh, 40%? If you score that low, I’d recommend either more coffee or go read Random Walk Down Wall Street or Informed Investor. Which one did I miss?

19. Generally, a portfolio that has 80% of its assets invested in stocks would be best suited for:

(a) An 18-year-old using the assets to pay for college expenses pver the next 4 years.
(b) A 35-year-old investing for retirement.
(c) A 75-year-old investing for income and capital preservation.
(d) None of the above.
(e) Don’t know.

I picked (d) none of the above. My feeling is that asset allocation is completely dependent on both your time horizon and risk tolerance. You can’t just tell every 35-year old investing for retirement to put 80% of his money in stocks. But I guess I can see how (b) is the “best” answer. Also, the quiz seems old, as many questions refer to 2002.

Comments

  1. For what it’s worth, I agree with your ‘wrong’ answer.

  2. Sorry, but I’d have to go with “b” since they qualify it with “generally” (which addresses your concerns).

    Anyway, “generally” I like what Vanguard has to say and the services they offer — good products at great prices. Glad you’re looking at them too.

  3. I agree with their answer also. An 80/20 stock/bond mix for retirement (assuming 65) makes sense.

    I got #6 & #13 wrong… 6) the effects of “pretax returns” on “after tax returns” seemed too obvious. 7) Couldn’t remember the 2002 IRA limit, since I’ve never contributed to an IRA. (all in 401k’s and SEP’s).

  4. I got 100%, but I think you’re right on that one… I time the market, so sometimes I’m at 0%, other times at 100%. Depends. Hahah.

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