PlanPrep Quiz I

Question #1: My investments should always be held with a custodian (not the one at the school) and not directly with my advisor.

The financial Ponzi schemes of the past lured people into investing their money directly with the individual or firm rather than a custodian.

Question #2: Variable annuities generally have higher rider fees and additional costs than most other investments.

Those costs, some of them hidden, can place a big drag on your returns.

Question #3: No load mutual funds always have no costs. They are free of any charges or expenses, thus the name.

They have no sales charges, but they do incur trading costs and may have internal costs known as a 12b-1 fee as well.

Question #4: Investors rarely get out at historical bottoms and wait for the markets to regain their losses before investing again.

Usually, the opposite is true. Most people become more fearful when losses are significant and greedy when markets surpass previous high points.

Question #5: The best place to invest my money if I need it in the next 3 years is a diversified bond fund.

Never take risk with money you need in such a short time period. Keep it in the bank, either locally or online.

Question #6: The amount you invest in a stock is guaranteed not to lose money. You will always get your money back.

100% of your money is at risk of loss, which is why it is so important to have a well diversified portfolio!

Question #7: High yield bonds are also known as junk bonds, which is why they pay high interest rates.

They have to reward you for the additional risk you take.

Question #8: Bonds in my portfolio generally go down in value when interest rates go up.

Bonds would go down in price - New bonds would pay a higher rate of interest, so your existing bonds would be worth less as they are not paying as much.

Question #9: When I buy a stock, I am actually a lender to the company.

You become a part owner of the company - You should evaluate each stock almost as if you were going to buy the company to run it yourself.

Question #10: Active portfolio management always provides higher returns than a buy-and-hold strategy.

Active management is less tax efficient and much more costly, while rarely beating the market.