The Get It Right Quiz
INVESTMENT MISTAKES AND PLANNING BLUNDERS CAN MAKE IT HARDER FOR YOU TO STAY ON THE ROAD TO FINANCIAL SECURITY. THINK YOU'RE A GOOD DRIVER? TAKE OUR QUIZ
(MONEY Magazine) – Answers
1. False. Your portfolio would be woefully out of whack, with far too much in high-octane growth stocks and no exposure to risk-reducing value stocks and bonds. To see if your portfolio is truly diversified among stocks and bonds, growth and value, and large and small shares, check out the Instant X-Ray tool at T. Rowe Price's site (troweprice.com).
2. False. While there's no danger that Uncle Sam will miss interest payments or fail to repay principal, Treasury bonds, like all other bonds, are subject to interest rate risk. If rates go up, the market value of your Treasury bonds would go down. For more, see "Rules of the Game" on page 85.
3. False. Problem is, a rebound may not occur for many years, if at all. Take former tech darling Cisco Systems. After huge gains in the '90s, Cisco nosedived from a split-adjusted $80 a share in March 2000 to $8.60 in October 2002. It's since soared nearly 115%, but that surge took it only to its recent price of $18.50, still 77% below its peak.
4. c: 13.5%. If you began saving $500 a month at age 40 rather than at 30, you would accumulate only $457,400 vs. almost $1.1 million, assuming 8% annual gains. To close the gap, your investment would have to earn an unrealistic 13.5% return.
5. d: $50,000. Actually, the low-cost fund would come out ahead by almost $51,500, proving that even seemingly small cost savings can add up to a big advantage over time. —WALTER UPDEGRAVE